DFL proposals will give Minnesota the highest top rate of tax in the United States
Even with a forecast budget surplus of $17.6 billion, Gov. Walz’ “One Minnesota” budget seeks to raise taxes. One of these increases is a 1.5% surcharge on capital gains and dividends of individuals, trusts, and estates over $500,000 and 4% for that income if it exceeds $1 million. Gov. Walz estimates that this would generate $661 million over the next two years. That is highly unlikely.
While the value of an asset can increase in each year that it is owned, the capital gain is taxed only when the asset is sold. For example, consider a taxpayer who bought 100 shares of stock for $10 each (total cost of $1,000) and sold them for $15 each (total value of $1,500). The increase in value of $500 is the amount of capital gains income “realized” by the taxpayer. If the sale occurs within a year of the purchase, these are considered short-term capital gains for tax purposes; if more than a year after purchase, they are considered long-term gains. Under current state and federal law, these capital gains are reported and taxed as income in the year that they are realized.
Gov. Walz is proposing a capital gains tax hike in addition to this. So, with capital gains in Minnesota taxed as income at 12.5% and with a further tax of up to 4% as a “surcharge,” Minnesota would have, under the DFL proposals, a top rate of income tax of 16.5%, comfortably the highest in the United States.
So what? They’re rich
Of course, this rate will only apply to the highest earners in Minnesota — surely they can afford it?
Figure 1: Share of state’s income earned and income taxes paid by the top 10% of Minnesota households by income
Gov. Walz has said that he wants to halt or reverse the exodus of residents from Minnesota to other states. Why, then, is he not only copying but trying to top the policies of states like California and Illinois, which have also been hemorrhaging residents to places like Florida and Texas?