Minnesota ranks 43rd in the country for business taxes

Yesterday the Tax Foundation released its State Business Tax Climate Index for 2019. Minnesota ranked 43rd out of 50 states.

On corporate taxes, Minnesota ranks 42nd. On individual taxes, it ranked 46th. For sales taxes, it ranked 27th. Our state ranks 31st for property taxes. On unemployment insurance taxes, Minnesota ranks 25th.

In terms of rankings, this represents an improvement on 2018. Then, Minnesota ranked 46th overall and 43rd on corporate taxes (one below 2019), 45th on individual taxes (one above 2019), 25th for sales taxes (two above 2019), 28th for property taxes (three above 2019), and 37th for unemployment insurance tax (12 below 2019).

The Tax Foundation scores the states on each of these measures on a scale of 0 (worst) to 10 (best). As Table 1 shows, looking at Minnesota’s scores in each of these areas, we see that over the last year Minnesota has improved on measure of corporate tax, individual tax, and unemployment insurance tax, but has got worse on the measures of sales tax and property tax.

Table 1: Tax Foundation scores for Minnesota  

Source: The Tax Foundation

These improvements, and Minnesota’s overall rise of three places in the rankings, are to be welcomed. They are steps in the right direction. But there is still a long way to go. Our state still ranks in the bottom 10 on the measures of corporate tax and individual tax.

There is empirical evidence that high individual taxes in a state cause people to leave and others to avoid the state altogether. There is also empirical evidence that high rates of corporate tax have a large negative effect on aggregate investment and entrepreneurial activity. They are also a big influence in foreign investment decisions. Evidence also shows that high rates of corporate tax reduce entrepreneurship and significantly influenced firm and household location.

As we reported last year, Minnesota’s economic performance is middling at best. For all the hard work Minnesotans do, reflected in their above average rates of labor force participation and number of workers per household, their below average productivity means that they generate below average levels of output per worker. The state’s taxes are a big factor in that. For the sake of the state’s future prosperity, we need to keep climbing these rankings.

John Phelan is an economist at the Center of the American Experiment.