Creating a fifth-tier income tax bracket in Minnesota is sheer lunacy

It is mind-boggling enough that with an $18 billion surplus, Minnesota DFL lawmakers have expressed no interest in lowering taxes for Minnesotans. But what is even harder to rationalize is the fact that they also want to raise taxes.

From Governor Tim Walz’s proposal to create a state-paid family leave program which would raise payroll taxes on workers to other proposals like Bill SF 80 which would raise taxes on Businesses that pay their executives significantly more than their lowest-paid workers, DFL legislators have plenty of ideas on how to raise taxes on Minnesotans.

The worst one, however, has to be the more recent proposal to create a fifth-tier income tax on households making over $250,000 — for single filers — and over $500,000 for married joint filers, at a rate of 12.5 percent. This is the same proposal that was floated around in the last legislative session but gained no traction. It is back now and sponsored by over 10 legislators.

This is lunacy

In the face of such a massive surplus, any type of tax hike is hard to rationalize. But Minnesota also has some of the highest tax rates in the country.

According to the Tax Foundation, Minnesota’s top income tax rate as of 2022 was the seventh-highest in the country. Our lowest rate of 5.35 percent was higher than the top rate in 25 states — some of which levy no income taxes.

With a 12.25 percent top rate, Minnesota would have the second-highest top income rate, only surpassed by California. But while California’s top rate only kicks in at incomes over $1 million even for single filers, Minnesota’s kicks in at $250,000. So for incomes between $250,000 and $1 million, Minnesota will have the highest top income tax rate in the country.

Will such a proposal pass?

Maybe, maybe not. It’s possible that this is an opportunity for some legislators to signal their priorities to their base, even if their proposals don’t have a chance of becoming law. But DFL legislators are also considering massive spending proposals. And some of that spending will likely become a permanent part of the budget. Once the surplus runs out, chances are that other DFL legislators might warm up to the idea of raising taxes, especially on the rich, in order to maintain that spending, if not now, then possibly later.

But as American Experiment has pointed out, Minnesota’s economy is already unimpressive, and numerous other states — most of which already had lower taxes than Minnesota — have significantly cut their taxes further to become more competitive.

So, regardless of what the reasons for proposing the bill are, creating a fifth-tier income tax is sheer lunacy.