Complaints about Minnesota’s tax climate have become a common refrain.
Minnesota has had a reputation for taxing its wealthy residents at a higher rate than many other states. Citing conversations with business leaders, Twin Cities Business' Editor In Chief Dale Kurschner recently warned that Minnesota's "anti-wealth policies" are "chasing such people out of our state" and inciting a "slow but meaningful exodus."
Meanwhile, Minnesota has been ranked among the worst in the nation for its business taxes. (Quality of life measures, however, helped Minnesota move higher in Forbes' latest ranking of the "best states for business.")
Looking to seize on the negative perceptions, the Dakotas have in recent years made attempts to attract Minnesotans and Minnesota businesses across the border. Similarly, last year, amid debate over proposed business-to-business taxes in Minnesota that were later repealed, a Wisconsin lawmaker attempted to lure disgruntled businesses across the eastern border.
But a new report from a Dallas-based think tank suggests that high-income Wisconsin residents may actually see tax advantages if they moved to Minnesota.
The new data was released by the National Center for Policy Analysis, which bills itself as a "nonprofit, nonpartisan public policy research organization" whose goal is to "develop and promote private, free-market alternatives to government regulation and control, solving problems by relying on the strength of the competitive, entrepreneurial private sector." It collaborated with the John K. MacIver Institute for Public Policy, a Wisconsin-based think tank, to produce the report.
The report pointed out that Wisconsin taxes have been cut by nearly $2 billion since 2011 and the tax code has been simplified. But it said that Wisconsin loses and average of $136 million a year in "adjusted gross income" due to residents leaving for other states, and it posited that tax burdens may be a key culprit in driving people away.
To compare states, the National Center for Policy Analysis created a "state tax calculator," which is meant to calculate how a person's tax burden would differ if they relocated. It's based on a "proprietary financial planning model" that, among other things, assumes that wages would remain the same in both states, earnings will increase at the assumed 3 percent rate of inflation, and money invested in retirement or savings accounts will grow 4 percent annually. The calculations are also “based on the economic theory that households manage their finances so as to smooth out their discretionary spending over their lifetime.”
Which Midwestern state is preferable from a tax-burden perspective depends on a number of factors. For example, a single, 25-year-old earning $30,000 and renting his or her home is better off in Wisconsin than in Iowa, Illinois, or Minnesota, according to the report. Same goes for a 30-year-old renter earning $50,000.
But higher-income Wisconsinites are not as well off, according to the study. For example, the National Center for Policy Analysis claims that a 40-year-old married couple who own a home and earn $75,000 a year would save money if they moved to Minnesota, Michigan, or Iowa. A 50-year-old married, home-owning couple with $100,000 in income would also fare better in those neighboring states. (Illinois was the exception in both of those scenarios.)
Specifically, the 40-year-old couple could save roughly $50,500 over their lifetime (assuming they live to 100 years old) by moving to Minnesota, according to the report. The 50-year-old couple would reportedly save about $39,000.
Why might Minnesota be better for those higher-earning residents? The report said that, while Minnesota has higher marginal income tax rates than Wisconsin, its property tax rate is lower—meaning homeowners (rather than renters) would benefit most from the move.