With a $17.5 billion surplus, we should be cutting taxes, not raising them
Despite a historic $17.5 billion surplus, DFL legislators want to raise taxes and fees on Minnesotans. One of the ways they want to do that is by creating a fifth-tier income tax through HF 442.
When originally proposed, HF 442 called for creating a 12.45 percent income rate for incomes over $250,000 for single filers; $500,000 for married joint filers; and $400,000 for taxpayers filing as head of household.
The author of the bill, Representative Kaohly Vang Her, has amended it. So, currently, the bill proposes a 10.85 percent tax bracket for incomes over $1 million for married individuals filing jointly; $600,000 for single filers, and $800,000 for taxpayers filing as head of household.
Earlier today, the House Tax Committee had a hearing on this bill. I spoke in opposition to the bill, arguing that it would be bad for Minnesota’s economy for the following reasons:
Minnesota is already a high-tax state. According to data from the Tax Foundation, this year, Minnesota’s top income tax rate is the seventh highest in the country.
Furthermore, this tax hike couldn’t have come at a worse time. Since 2021, numerous states have cut their income taxes permanently in response to growing tax revenues. Most of these states, in fact, already had favorable income tax systems compared to Minnesota. Their tax cuts have put us even further behind. We have a lot of catching up to do. Raising taxes is the opposite of what we should be doing.
Research generally shows that higher tax rates do not necessarily translate to higher revenues. The dollar amount of tax revenue seems far more likely to be a function of the size of the state’s economy than of its tax rates.
So, while creating a fifth-tier income tax bracket would not bring the state more money, it will make it harder for Minnesota to compete with other states and the rest of the world for skilled labor as well as investment capital. That is a battle that we are already losing, highly due to our punitive taxes. Data from the IRS shows that Minnesota, on average, has been losing middle and high-income residents to low-tax states like Florida.
To grow, Minnesota’s economy needs people to come and invest in our state. And our businesses need highly skilled and highly productive people to come and work here. With a $17.5 billion surplus, we have a historic opportunity to cut taxes and make Minnesota a more attractive place for people to move to, work and invest in. This bill, however, does just the opposite.
Certainly, childcare and housing are expensive in Minnesota, but more revenues — if they at all materialize— won’t solve such issues. This is because these issues are caused by government regulation, to begin with. Not to mention that Minnesota already spends a lot of money. More spending will unlikely accomplish much.
You can watch my testimony here.