Minnesota’s Economic News — W/E 1/28/22
State and local taxes and spending Minn Post: A new Minnesota law is saving certain kinds of businesses a boatload in federal income taxes Star Tribune: Minnesota lawmakers face $7.7B…
The House and Senate agreed to over $1 billion dollars in tax cuts last week, much of it focused on the middle class. The largest chunk—nearly $220 million—went to cut taxes on social security income. The bill also included substantial increases in subtractions and credits for expenses related to child care, education, scholarship program contributions, and student loans. On the business side, the bill lowers statewide property taxes on businesses and, in particular, small businesses. Credits for investments in research and development, as well as start-ups also get a boost. Finally, the bill would also reduce the estate tax by eliminating the tax for lower value estates, consistent with federal law.
In vetoing the bill, Governor Dayton complained the cuts are “irresponsibly large” and focus “tax relief to some of the most fortunate.” Yet, add up the tax cuts and the bill unquestionably focuses on seniors, families, and small businesses. The governor’s criticism also ignores the impact our tax code has on the incentive to do business in Minnesota and to remain a resident of Minnesota. The real problem with the vetoed tax bill is that it doesn’t provide enough broad-based, pro-growth tax relief.
American Experiment’s priorities focus on adopting credits for contributions to charities that award K-12 scholarships and reducing the estate tax. For decades, American Experiment has worked to expand opportunities for low-income students stuck in failed schools. Credits for contributions to scholarship granting charities would make it possible for low- and middle-income families to send their kids to better and higher performing schools.
American Experiment policy reports document substantial net losses of higher-income people to other states and the estate tax represents maybe the strongest incentive for the wealthy to leave or never move to Minnesota. The fact is, Minnesota likely losses more revenue from wealthy people leaving the state than the estate tax collects. Ideally, the state would join 38 states and fully eliminate the estate tax, but eliminating the tax for lower value estates in conformity with the federal law represents a good compromise.