Federal tax conformity provides a unique opportunity to enact pro-growth tax reforms that will improve Minnesota’s competitiveness, enhance our business climate and remove headwinds to economic growth. The adoption of new federal tax definitions will broaden the state tax base increasing state income taxes for many Minnesota taxpayers unless other tax reforms are enacted. Policymakers should offset those tax increases by reducing uncompetitive taxes that undermine investment, entrepreneurship, innovation and talent recruitment and retention in Minnesota.
Economic research has found that high tax rates negatively impact investment, wages, entrepreneurship, talent retention and recruitment – the very items needed for a strong and growing economy.
• New firm employment is negative and disproportionately impacted from state corporate tax rates – for every 1% increase incorporate rate, employment in start-up firms declined by 3.7%.
• State individual income taxes negatively affect both high-level scientific talent and pass-through formation and employment levels.
• The recent federal tax changes make state tax rates even more impactful.
• Rate reductions will benefit all taxpayers and job creators of all sizes and in all industries.
• A corporate tax rate reduction will reduce a regressive tax that is ultimately paid by consumers, employers and investors.
The Legislature must act
• Reduce corporate and all four individual income tax rates with goal of getting Minnesota out of top five highest tax rate states.
• Fully conform to Section 179 business expensing provisions to encourage investment in Minnesota operations by small businesses and farmers.
• Enact other reforms to enhance Minnesota’s competitiveness and reduce complexity and compliance costs including eliminating the corporate alternative minimum tax and conforming to federal estate tax threshold.