DFL deficit: House DFLers want to give Minnesota the second highest top rate of income tax in America

The DFL deficit

In February 2023, Minnesota Management & Budget (MMB) forecast a state government budget surplus of $17 billion for the 2024-2025 biennium. In that “historic” session, the DFL trifecta blew through that surplus and, between 2019 and 2024, Minnesota’s state government spending per person and adjusted for inflation increased by 23%.

That “historic” trifecta also hiked taxes and fees by $10 billion, but even this wasn’t enough to cover the explosion in state government spending, and, in November 2024, MMB forecast a state government budget deficit of $3.5 billion in the 2028-2029 biennium, or $5.1 billion if you account for inflation.

This month, we learned that Minnesota’s fiscal situation had deteriorated yet further. The forecast budget surplus for the 2026-2027 biennium is down $160 million — from $616 million in November to $456 million — and the forecast deficit for the 2028-2029 biennium is up to $4.0 billion, or $6.0 billion if you account for inflation.

This deficit — the result of gross fiscal mismanagement by the state government over the last two years — is the central fact of state government finance. How we deal with it — with higher taxes, spending cuts, or some combination of the two — will dominate political and policy discussion in Minnesota for the next two years.

Taxed Enough Already

We have been clear that there should be no more tax hikes.

On the spending side, such is the scale of the explosion of state government spending in recent years, that, according to the November 2024 numbers, Minnesota could close its looming budget deficit entirely with spending cuts and real terms, per capita spending would still be higher in 2029 than in any year before 2024. That is probably true with the more recent numbers.

On the revenue side, Minnesotans are already some of the most heavily taxed citizens in the United States. As Figure 1 shows, the Tax Foundation finds that Minnesota has the fifth highest top rate of income tax in the United States, at 9.85%. Furthermore, the income level at which the top rate kicks in, $330,410 for a married couple filing jointly, would be taxed at a lower rate in each of those states except Oregon.

Minnesotans agree. Last month, KSTP reported:

At some point after the Minnesota House settles its political stalemate, legislators will start focusing on issues. When they do, lawmakers will find that Minnesotans want them to focus on lowering taxes, addressing health care and stopping fraud in state government spending, according to the latest KSTP/SurveyUSA poll.

“You are getting a public reaction against tax increases,” said Carleton College political analyst Steven Schier after reviewing the survey results. “Now Republicans hope they can use that and ride that through the legislative session and into the next election as a winning issue for them.”

When asked to name what they consider to be the most important issue facing Minnesota lawmakers, 25% said “lowering taxes,” making it the single most mentioned top issue in the survey… [Emphasis added]

Our own polling supports this. Recently, my colleague Bill Walsh wrote:

Sixty percent of Minnesotans said spending cuts are the way to close the budget gap.

“‘Cause I’m the taxman…”

Others disagree.

With a whopping 18 authors — Reps. Her (DFL); Gomez (DFL); Lee, K. (DFL); Sencer-Mura (DFL); Hemmingsen-Jaeger (DFL); Pérez-Vega (DFL); Hicks (DFL); Coulter (DFL); Hanson, J. (DFL); Jordan (DFL); Kozlowski (DFL); Hollins (DFL); Pursell (DFL); Frederick (DFL); Koegel (DFL); Smith (DFL); Greenman (DFL); and Kotyza-Witthuhn (DFL) — HF 1958 would hike the top rate of income tax in Minnesota to 12.45%, the second highest rate in the United States after that poster child of Blue State governance, California. Furthermore, this rate would kick in at a level of income — $500,000 for a married couple filing jointly — which the Golden State taxes at “only” 9.3%.

This proposal comes round every couple of years. We opposed it in 2023 — when the proposed rate was “just” 10.85% — and in 2021. What is concerning is the growing popularity of the measure: just two Reps. signed onto the proposal in 2021 and 11 did so in 2023. This is a rough measure of the DFL’s increasing radicalism on fiscal matters and its growing divergence from the wishes of most Minnesotans.

As for us, we opposed this measure then and we oppose it now. We really don’t want Minnesota to be number two.