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Closing Minnesota’s Budget Deficit

Key Findings:

-Minnesota has the fifth-highest top rate of state personal income tax in the United States—9.85 percent on income over $164,400 a year. Only Oregon, New Jersey, Hawaii, and California have higher top rates.

-Minnesota doesn’t just tax “the rich” heavily. Our state’s lowest personal income tax rate—5.35 percent on the first dollar of taxable income—is higher than the highest rate in 25 states.

-At 9.80 percent on the first dollar of taxable revenue, our state has the fourth-highest state corporate income tax rate in the United States. Only Pennsylvania, New Jersey, and Iowa have higher rates.

-Higher tax rates do not necessarily bring higher revenues. Minnesotans actually handed over a larger share of their incomes to the government in the 1990s with top income tax rates of 8.50 percent than they did in the 1970s with rates of 17.0 percent.

-There is a much stronger relationship between state GDP and tax revenues than top tax rates and state revenues: for total state tax revenues as a share of state GDP, the mean average is 6.6 percent and the median is 6.7 percent. In other words, there is very little variation in these numbers.

-This means that if policymakers want more money to fund government services, they should look to increase the state’s GDP rather than its tax rates.

-The overwhelming balance of academic literature shows that tax hikes negatively impact economic growth. Of 26 papers reviewed by the Tax Foundation, 23—88 percent—found a negative impact of higher tax rates on economic growth.

-In total and per person, and in real inflation adjusted terms, Minnesota’s state government has never spent more money than it is right now: $4,088 per Minnesotan, up 26.6 percent since 2010.

-Minnesota’s welfare spending per person in poverty—$30,479 in 2018—is the third highest in the United States and nearly double the national average ($17,127).

-If Minnesota’s state government spent the national average amount of welfare per person in poverty in 2018, it would have spent $9.0 billion instead of $16.1 billion—a savings of $7.1 billion. If Minnesota closed its deficit by cutting welfare spending by $2.4 billion, the amount of welfare we spend per person in poverty would still rank us 6th highest in the United States.

-If Minnesota closed its forecast budget deficit entirely with spending cuts, we would be returning spending in real, inflation-adjusted, per capita terms, to the level of 2016-2017.

Read the full report.




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