EY (Ernst and Young) produces one of the nation’s most impressive annual entrepreneur events, the Strategic Growth Forum. It attracts nearly 2,000 top CEOs, entrepreneurs, advisors, investors and thought leaders each November, culminating in a national Entrepreneur of the Year awards ceremony that honors the best of the best from around the country. Upper Midwest regional Entrepreneur of the Year award winners (which we covered in our August issue) were in contention for the national awards as well.
The thought leadership present at these events is outstanding. Speakers explore some of the most important challenges of our time, while affirming steps some are already taking, and providing ideas on how we all might operate our businesses more effectively. What better company to be in than several hundred successful entrepreneurs?
Sadly, though, this marked the second time in two years that our state’s anti-success tax climate came up. Each year I had dinner with accomplished entrepreneurs from Minnesota. The conversations inevitably moved into the question of where we live. And each time I was surprised to hear they had recently moved out of the state (one to Florida, the other to Texas). One kept his business in Minnesota, the other kept a location here but moved his headquarters with him.
They’re not alone. I’ve been hearing directly and indirectly about others leaving Minnesota because of the current administration’s profound inability to appreciate successful, wealthy individuals at a time when plenty of other states do.
In fact, our state chases away successful people. It does this first by having a revenue department that aggressively hunts down and accuses people of skirting tax-related residency rules when they’re flagged by a few of some 26 analysis factors that include such things as where their doctors, lawyers, bankers and investment managers live. (This brilliantly ensures such professionals lose the business from long-held clients when they move out of state, regardless of whether those clients would have liked to have continued doing business with them.)
Minnesota accelerated the exodus of wealth in 2013, when it increased by 25 percent the taxes to be paid by its highest wage earners—and lowered the threshold of “highest” to households with around $250,000 or more in income. At 9.85 percent, it’s the fourth-highest such tax in the nation, and worse, hits most of the 22,000 Subchapter S corporations in Minnesota, as their profits are passed through to their owners’ tax returns. (Great timing, given a Kauffman Foundation report released at about the same time placed Minnesota dead-last nationally in business start-up activity.) There’s also the following to consider:
The Center for the American Experiment’s Peter Nelson issued a report a few years ago showing we’re losing our highest-paying taxpayers at the rate of $340 million a year in adjusted gross income. Since 1995, Minnesota has lost more than $5 billion in earned gross income to other states, according to his analysis of IRS data.
And we’re not just losing significant taxable income and estates when people leave, we’re losing their sharp IQs, the dollars they might have invested in other local startups, their donations to charities and the arts, the money they would have spent on their homes, vehicles, children, health care and other living costs, and the talents and contributions their children might have brought to our community.
In other words, we’re losing the types of leaders – and families – that built the Minnesota we know today. I very much doubt the Pillsburys, Daytons, Cargills and MacMillans would have remained here long enough to develop the businesses they did if they had faced similar circumstances.
Yet there remain legislators and the governor himself who seem to disregard the above as nothing more than whining by people who can afford to pay more taxes, and therefore should pay more taxes. They also seem to believe that, really, Minnesota isn’t losing all that much wealth or all that many successful people.
Help us reveal what’s really going on here.
Twin Cities Business is conducting a study on wealth migration. Of those of you who are within the state’s top tax bracket, I ask that you have your estate planner, investment adviser, lawyer or accountant call (612) 336-9299 or email me at email@example.com to receive a wealth migration survey form.
All survey participants will remain confidential, each individual survey response will remain anonymous and all survey information will be pooled to provide one concise snapshot of how much wealth Minnesota is, or is not, losing. We’ll report our findings in the March edition.