Under Biden’s proposal, MN will have the highest corporate income tax rate in the OECD

Joe Biden just unveiled his $2 Trillion infrastructure plan — The American Jobs plan. Among other things, he is proposing to raise the federal corporate income tax rate to 28%. While this would universally raise the U.S. corporate tax, it would especially give high-tax states like Minnesota, some of the highest taxes in the developed world.

At 9.80%, Minnesota has the third highest corporate income tax in the U.S, according to the Tax Foundation. With the federal corporate income tax rate at 21%, the effective combined rate for Minnesota is currently 28.7%. If Biden’s proposal is enacted into law, Minnesota’s combined corporate tax will rise to 35.1%. This would be higher than the 32 percent corporate tax rate levied by France, which is currently the highest in the OECD (Organization for Economic Co-Operation and Development) — a collection of developed countries.

How Minnesota compares to the OECD

According to the Tax Foundation,

If the federal corporate tax rate were raised to 28 percent this year, corporations operating in 32 states and the District of Columbia would face the highest combined corporate tax rate in the OECD, a distinction currently held by France with a 32.0 percent rate. Next year, France will lower its corporate tax rate to 25.8 percent, leaving Portugal with the highest corporate tax rate in the OECD at 31.5 percent.

Corporations in Iowa, Minnesota, New Jersey, and Pennsylvania would face a combined corporate income tax rate at or above 35 percent. Only seven states—Ohio, Nevada, North Carolina, South Dakota, Texas, Washington, and Wyoming—would face a corporate rate less than 30 percent, all of which forgo a corporate income tax except North Carolina, with a low rate of 2.5 percent.

Worse yet, since Governor Walz’s plan to hike the corporate tax rate in Minnesota to 10.8%, Minnesota’s total tax rate rate could even rise further, surpassing New Jersey. And as John Phelan has explained, New Jersey’s highest rate kicks in only at incomes of over $1 million. So, Minnesota could have the highest corporate income rate for small businesses both in the US, and the entire OECD.

Figure 1: Combined corporate income tax rate, %

On its own, Gov. Walz’s plan to hike the corporate tax rate is bad policy. It makes Minnesota highly incompetitive in attracting capital and high skilled labor. Adding Biden’s tax proposal, Minnesota is bound to end up with possibly the highest tax rate in the OECD. This should be concerning.

At a time when even labor is becoming more mobile, topping the list of regions with highest taxes is not something to aspire to.