Minnesota Corporate Tax Policy Should Mirror Iowa
Tax rates matter. They play a big role in how competitive a state economy is in relation to other states. Higher tax rates not only penalize hard working individuals, families and businesses, but they also deter economic growth and make a state less competitive. And in this way, Minnesota corporate tax policy is heading in the opposite direction from a neighbor to the south.
Gov. Tim Walz is proposing a Minnesota corporate tax hike while his Iowa counterpart, Gov. Kim Reynolds, was successful in leading cuts to her state’s rate, from 12 percent (highest in the nation) to 9.8 percent. The lower figure just happens to be the rate Minnesota corporations pay today.
That rate will rise to 11.25 percent, however, if Walz gets his way.
At that point Minnesota would jump from 5th-highest to second in the country, behind only New Jersey’s top rate of 11.5 percent. The tax-happy Walz doesn’t realize — or doesn’t care — that his plan will ultimately impact workers and consumers. This means higher prices, fewer jobs and lower wages.
Should he ever start to care about the construction worker who loses a few hundred dollars of monthly income, or the single mother who has to cut back on milk for her kids, he might want to look to Iowa. He can learn a little something from Reynolds and the legislature.
Corporate tax reform
They made tax reform a priority. They know taxes on income, both of the individual and corporate variety, are harmful, due to their negative impact on economic health.
Reynolds and Iowa lawmakers in 2018 passed pro-growth tax reform that lowered income tax rates and broadened the sales tax base. Reducing tax rates, along with practicing fiscally responsible spending policies, is making Iowa more competitive and economically strong.
The corporate tax rate, thanks to Iowa’s tax reform law, fell from 12 percent, the highest in the nation, to 9.8 percent this year. Iowa’s corporate tax will have four brackets, ranging from 9.8 percent to 5.5 percent. High corporate taxes in Iowa discourage productivity, hiring and investing in Iowa.
Many states have or are in the process of gradually lowering their corporate income tax rates. Iowa had to follow suit to remain economically competitive. Iowa’s corporate tax rate matters because we are in direct competition with 49 other states for businesses, jobs and people. South Dakota foregoes taxing individual or corporate income. This makes the state, a neighbor to Iowa and Minnesota, far more economically competitive.
Iowa is making progress in lowering both personal and corporate income tax rates. More work is needed to lower tax rates. People and business respond to tax climates. The evidence is clear from high tax states that are seeing an exodus of both people and businesses fleeing.
Iowa understands that reducing tax rates will lead to more growth and opportunity. By balancing prudent spending with lowering tax rates Iowa is moving to become a pro-growth leader in the Midwest.
Will Walz realize this about Minnesota corporate tax policy before it’s too late?
This is a guest post by John Hendrickson, Policy Director at the Tax Education Foundation of Iowa.