Minnesota’s Economic News — W/E 9/24/21
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In our 2018 report The Cost of Minnesota’s Estate Tax, we found that our state government more than likely lost revenue overall as a result of the estate tax. Sure, the tax will bring in some money – $183.2 million in 2015-2016 – but it also causes people to leave the state taking future payments of income and sales tax with them. For 2015-2016, we estimated these losses to total $230.5 million meaning that that year the estate tax was a net revenue cost to the state government to the tune of $47.3 million.
New research has confirmed this finding. In a paper for the NBER titled ‘Taxing Billionaires: Estate Taxes and the Geographical Location of the Ultra-Wealthy‘, economists Enrico Moretti and Daniel J. Wilson set out to “study the effect of state-level estate taxes on the geographical location of the Forbes 400 richest Americans and its implications for tax policy”. First, they find that “Overall, billionaires’ geographical location appears to be highly sensitive to state estate taxes”. Next, they find that “Surprisingly, despite the high estimated tax mobility, we find that the benefit [in terms of revenue gained] exceeds the cost [in terms of revenue lost] for the vast majority of states.”
But not for Minnesota. Moretti and Wilson estimate that we are one of four states which lose revenue as a result of our estate tax, just as we argued last year. Interestingly, they note that the four states where this is the case are also the four states with the highest top rates of personal income tax: Hawaii, Minnesota, Oregon, and Vermont.
The implications of this are clear for policymakers in St. Paul. The purpose of tax is to raise money to pay for government functions. On this score, Minnesota’s estate tax is a loser and it should be repealed.
John Phelan is an economist at the Center of the American Experiment.