(C) Minnesota Reformer
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DFL lawmakers propose additional income tax tier targeting wealthy Minnesotans [1]
['Michelle Griffith', 'More From Author', '- April']
Date: 2023-04
House Democrats want to create a fifth state income tax tier that would increase taxes for the wealthiest Minnesotans.
The bill, (HF442/SF678), would establish a 10.85% tax rate on a Minnesotan’s taxable income above $1 million for married joint filers; $600,000 for single filers; and $800,000 for heads of households. The additional income tax tier would generate an additional $470 million in fiscal years 2024-2025, according to the Department of Revenue.
The fifth income tax tier would impact 0.8% of Minnesota taxpayers — or about 24,000 people, the Department of Revenue estimated. Under the new rate — for example — a Minnesotan with an income of $1.5 million would pay the lower incremental rates on their first $999,999 and then the 10.85% rate on their next $500,001.
Minnesota has a steeply progressive individual income tax — households with higher incomes have a higher tax rate as a share of their income compared to lower income households. Income tax revenue goes into the state’s general fund, which bankrolls K-12 education, health care and a myriad of state programs.
Rep. Kaohly Her, DFL-St. Paul, said at a House Taxes Committee hearing on Tuesday that the additional revenue generated by the fifth income tax bracket is needed, despite Minnesota’s $17.5 billion budget surplus — the majority of which is one-time money.
“From our farmers to our families in the city … in order for us to provide the resources they need to have good quality of life, we do need to have increased dedicated revenue sources and that is why this bill is really important at this time,” Her said.
The additional income tax bracket is one of the many tax increases DFL lawmakers are proposing this session, including an increased capital gains tax, a new delivery tax and a new tax in the seven-county metro area to fund housing.
Republican members of the Taxes Committee were staunchly opposed to the fifth tier income tax, arguing that people and businesses will flee the state because of its high tax rates. Rep. Jon Koznick, R-Lakeville, compared the income tax to taxes on cigarettes that are meant to discourage people from buying them.
“If raising taxes fundamentally keeps people from smoking cigarettes, well then raising taxes fundamentally keeps people from wanting to do business in the state of Minnesota,” Koznick said.
Republican lawmakers raised the same concerns in 2013 when Gov. Mark Dayton proposed creating a fourth income tax tier with a 9.85% tax rate. Lawmakers said high-income earners would move to bordering states. But a mass exodus didn’t occur.
The bill was laid over for possible inclusion in a tax omnibus bill, which will be proposed next week.
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