Tax Law

State Net Capitol Journal – February 9, 2015; Minnesota Top-Tier Tax Hike Doesn't Spur Exodus

Budget & Taxes

MN TOP-TIER TAX HIKE DOESN'T SPUR EXODUS: In 2013, Minnesota Gov. Mark Dayton (D) and the DFL-controlled Legislature added a new income tax bracket for the state's highest earners, individuals who make $150,000 or more per year and couples who make $250,000 or more. During debate over the tax hike, some Republican lawmakers argued it would cause wealthy residents to flee the state.

"It's been said that money talks, but money walks also," Rep. Mark Uglem (R) said at the time. "The job creators, the big corporations, the small corporations, they will leave. It's all dollars and sense to them."

But the state's Department of Revenue received 6,230 more returns from filers in the top tax bracket than expected in 2013.

"The economy is growing faster and more families are doing better in Minnesota than we initially estimated," said Revenue Commissioner Cynthia Bauerly.

Despite the news favoring his action, Dayton said, "It will never settle the issue."

He may be right about that. Rep. Greg Davids (R), who chairs the House Tax Committee, said he still believes adding a fourth tax bracket will be bad for the state over the long-term.

"I look at it from a little different angle," he said. "Had we not gone to the fourth tier, how many more earners would be earning more in Minnesota, staying in Minnesota. How much bigger could the numbers be?"

But Davids said he's not planning to spend a lot of time trying to roll back the tax increase, because both Dayton and Sen. Rod Skoe (DFL), chair of the Senate Tax Committee, would oppose it.

"Our state's budget is in pretty solid shape right now, for the first time in a fairly long time," said Skoe. "I'm not interested in making an adjustment that's going to put the strong financial shape of the budget at risk." (MPR NEWS)

STATE BUDGETS STILL RECOVERING: Most state budgets are continuing their "modest, slow" recovery from the Great Recession, with most states expecting to meet revenue projections and have balanced budgets, according to a new report from the National Conference of State Legislatures. But 12 states are projecting budget shortfalls, and six — Alaska, Arizona, Kentucky, Massachusetts, Michigan and Vermont — don't expect to make revenue forecasts. However, five others — Georgia, Maryland, Oklahoma, Texas and Utah — are expecting to exceed revenue forecasts.

"It's a good news report," said NCSL fiscal analyst Arturo Perez. "It's a position states want to be in, especially compared to where they were a few years ago. The recovery continues to be there for states, post-Great Recession." (STATELINE.ORG)

BUDGETS IN BRIEF: CALIFORNIA Assembly Speaker Toni Atkins (D) announced a proposal to increase transportation funding by $2 billion per year over the next 5 years. She plans to generate that money by redirecting truck weight fees, which currently go to servicing general obligation debt, back to transportation; accelerating the repayment of transportation loans; and establishing a new road-user fee (SIERRA SUN TIMES). • OHIO Gov. John Kasich (R) has proposed eliminating the income tax on small businesses with gross receipts of $2 million or less per year. His plan would offset the nearly $5.7 billion over two years that would be lost with an increase in the state's tax on larger businesses, the commercial activity tax (CLEVELAND.COM). • HAWAII lawmakers are considering creating a state-owned bank to assist homeowners with mortgage problems. HB 326 would commission a study of the state's laws to consider that possibility. NORTH DAKOTA is the only state that currently has a state-owned bank (PACIFIC BUSINESS NEWS). • The MISSISSIPPI House Ways and Means Committee unanimously approved a bill (HB 30) that would allow state and local government agencies to collect unpaid utility bills or student loans by seizing people's state income tax refunds (CLARION-LEDGER [JACKSON]). • In his State of the State address, MARYLAND Gov. Larry Hogan (R) called for the discontinuation of automatic increases in the gas tax, creation of a small business tax exemption, tax relief for military and emergency service retirees, and the repeal of a storm water mitigation fee he's long ridiculed as the "rain tax" (WASHINGTON POST).

- Compiled by KOREY CLARK

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