Under a new tax bill, Minnesota would have the second-highest top marginal individual income tax rate in the country

It is quite surprising that with all the evidence showing how detrimental high taxes are to economic growth, our governor is calling for tax hikes. What is more surprising, however, is the fact that he is not the only one. One good example is a bill introduced in the Minnesota House of Representatives.

The bill, which was introduced in February makes changes to Minnesota’s tax brackets. And much like Gov. Walz’s proposal, the bill also introduces a 5th tier income bracket, only at a much higher rate of 12.45 percent and not 10.8 percent. If passed, Minnesota taxpayers will face the following rates:

For married individuals filling jointly:

(1) On the first $38,770 $39,810, 5.35 percent;

(2) On all over $38,770 $39,810, but not over $154,020 $158,140, 6.8 percent;

(3) On all over $154,020 $158,140, but not over $269,010 $276,200, 7.85 percent;

(4) On all over $269,010 $276,200, but not over $500,000, 9.85 percent;

(5) On all over $500,000, 12.45 percent.

For tax payers filing individually:

(1) On the first $26,520 $27,230, 5.35 percent;

(2) On all over $26,520 $27,230, but not over $87,110 $89,440, 6.8 percent;

(3) On all over $87,110 $89,440, but not over $161,720 $166,040, 7.85 percent;

(4) On all over $161,720 $166,040, but not over $250,000, 9.85 percent;

(5) On all over $250,000, 12.45 percent.

Fo taxpayers filing as head of household:

(1) On the first $32,650 $33,520, 5.35 percent;

(2) On all over $32,650 $33,520, but not over $131,190 $134,700, 6.8 percent;

(3) On all over $131,190 $134,700, but not over $214,980 $220,730, 7.85 percent;

(4) On all over $214,980 $220,730, but not over $400,000, 9.85 percent;

(5) On all over $400,000, 12.45 percent

At 9.85 percent, Minnesota’s top marginal individual income tax rate is the fifth-highest in the nation. Raising it to 12.45 percent will give Minnesota the second-highest top marginal individual income tax rate, second only to California. Additionally, while California’s top rate kicks in at $500,000 for individual filers and $1,000,000 for married filing jointly, Minnesota’s threshold for the top rate is much lower–half of California’s.

Figure 1: Top Marginal Individual Income tax rates by state, 2021

Source: Tax Foundation

Not only that, but California has 10 income tax brackets, the top four of which apply to incomes of over $299,000 for individual filers. In California, income between (1) $299,508 and $359,407 gets taxed at 10.30%; (2) $359,000 and $599,000 gets taxed at 11.30%; (3) $599,000 and $1,000,000 gets taxed 12.30%. If this bill is passed, Minnesota will surpass all these rates for incomes between $250,000 to $1,000,000. At 12.45 percent, Minnesota will have the highest tax rate in the country for income between $250,000 and $1,000,000 for single filers.

Minnesota is already a highly taxed state. And research is clear regarding the impact of high taxes on economic growth. At a time when Minnesota is facing both a budget surplus and billions in federal support, there is no good reason to call for damaging tax hikes.