Minnesota’s tax system is long overdue for some serious reform

Yesterday, the Tax Foundation published its latest Business Tax Climate Index, a report that gauges how tax systems compare among states. Minnesota is yet again at the bottom of that list, ranking 45th best state for business taxes in the country — the same ranking as last year. This should be of little surprise considering our high taxes and the lack of any tangible reform in the state in recent years.

Out of the five taxes that the study analyzes, Minnesota ranks bottom ten on two — corporate and individual income taxes. And while we are not at among the worst on the other three taxes — property, sales, and unemployment insurance — we do not necessarily rank favorably either. Minnesota ranks 29th on sales tax, 31st on property tax, and 34th on unemployment insurance tax, showcasing an all-around bone-crushing taxation system.

Why Minnesota ranks so low

Minnesota is a high-tax state. Our top individual income rate, for example, is the sixth highest in the country — at least as of 2021. Our corporate income tax rate — in the same year — was the third highest in the country, only surpassed by New Jersey and Pennsylvania. Our sales tax rate is also one of the highest in the nation, and so is our cigarette excise tax.

Outside of high tax rates, we also have a more complex and discriminatory tax system. For example, we are one of the few states that impose an Alternative Minimum Tax for individuals and corporations. Minnesota also has a marriage penalty — whereby a married couple filing jointly faces a higher tax burden than a single filer with the same income. Our state also does not fully conform to the federal depletion schedule.

Reform is long overdue

Back in August, Governor Tim Walz claimed that Minnesota was one of the best places to start a business. Minnesota, however, has one of the lowest rates of business creation. Minnesota also lags behind the nation in economic growth. Looking at these tax rankings, it is easy to see why that’s the case.

Our high taxes are making it hard for us to compete with other states — and the entire globe — economically, leading to the poor results that we have witnessed for the better part of the 21st century.

If anything is to change, state policymakers must take a long hard look at the state’s taxes and how they negatively affect our economy. Looking at the evidence, it is quite clear that our tax system is long overdue for some serious reform.