SAINT PAUL – Minnesota workers shoulder the fourth highest individual income tax burden in the country, according to a recent report from WalletHub report.
According to statistics provided by WalletHub analyst Jill Gonzalez, Minnesota’s individual income tax rate is 3.59 percent.
Gonzalez said that rate is not entirely bad news for the state because “Minnesota actually offers the best government services in the country, thus the taxes paid by residents are put to good use.”
But NFIB Minnesota director Mike Hickey does not agree, saying the state’s taxes are too high.
“On all of these [tax] rankings, we compare badly” to other states, Hickey said.
Minnesotans have the 17th highest sales and excise tax burden, the 23rd highest property tax burden and pay the fifth highest in state taxes overall, according to WalletHub.
Hickey said a solution to the state’s tax burden would be “a new governor.”
Mark Dayton, a Democrat, has been Minnesota’s governor since 2011. The next election for Minnesota governor is next year, though Dayton has said he will not seek a third term.
Hickey said bills have been introduced in the Minnesota legislature that are designed to reduce the business/commercial tax rate in the state, as well as to address a high equipment purchase tax rate.
“That’s how difficult it is to try to get tax relief up here,” he said.
He said the state also has a high capital gains tax, meaning those who are successful in that area are “paying a lot.” Hickey said that is bad for Minnesota because “the most successful are getting the most jobs.”
“Look for a big battle in Minnesota,” Hickey said.
According to Hickey, Minnesota’s 9.85 percent individual tax rate affects businesses and farmers as well, as the state is “way out of conformity” with national averages.
Jeff Van Wychen, a Tax Policy fellow at North Star Policy Institute, said “state taxes alone are not a good standard by which to judge the relative taxes in a state.”
“Some states – such as Minnesota – rely more heavily on state tax revenues to fund public services and less heavily on local taxes; this is done in order to reduce dependence on regressive local property taxes and to equalize the ability of different regions of the state, which can vary significantly in terms of the size of their local tax base, to adequately fund public services,” Van Wychen said.
In addition, Van Wychen said taxes in high per capita income states, like Minnesota, tend to be higher than in low per capita income states because they receive less assistance from the federal government, have higher wage costs and a higher cost-of-living.
“In order to measure the relative size of government among the 50 states in a way that adjusts for differences in the level of federal assistance and wage costs, and that takes into account local taxes, it makes sense to look at total state and local general revenue as a percent of personal income,” Van Wychen said.
Using this measure, he said Minnesota ranks 25th in the nation based on 2014 state and local finance data compiled by the U.S. Census Bureau and personal income data from the U.S. Bureau of Economic Analysis.
In addition, Van Wychen said “Minnesota’s relatively high tax level has enabled the state to invest more heavily in E-12 and higher education than many other states,” and “these investments in turn have contributed to robust economic growth over the last half century.”
Tax Foundation policy analyst Morgan Scarboro said her foundation’s most recent tax report in 2012 ranked Minnesota eighth, finding that “the average Minnesota taxpayer paid $5,185 in state and local taxes, amounting to 10.8 percent of state residents’ total income.”
However, Scarboro said Minnesota has the third highest individual and corporate income tax rates in the country at 9.85 percent and 9.8 percent, respectively.
“They also have a unique statewide business property tax that’s levied 95 percent on commercial and industrial property [businesses] and 5 percent on cabins,” Scarboro said. “There’s an automatic inflator that’s outpacing inflation, so the collections of that harmful tax are increasing faster than inflation every year.”
Scarboro also said Minnesota has “a needlessly complex property tax system with 52 property classifications,” while the average number of classifications is six.
“Ultimately, the state suffers from high marginal tax rates and an unnecessarily complex system,” Scarboro said.