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Republican gubernatorial candidate Scott Jensen wants to eliminate the state income tax, which would create a $15 billion hole in the state budget each year.
The income tax makes up just over half of the state’s general fund revenue, meaning that eliminating it would require draconian cuts to programs like schools and Medicare, or steep increases in regressive levies like sales taxes and property taxes — or some combination of both.
The GOP nominee has not provided details on how he would fill the $15 billion annual hole in the state’s general fund if he eliminated the income tax.
Jensen, whose campaign did not respond to requests for an interview, has said in social media posts and media interviews since he floated the idea that he wants to put money back in people’s pockets.
Jensen, who is taking on DFL Gov. Tim Walz, says eliminating the income tax would keep people from leaving Minnesota while attracting new residents and businesses. Net out-of-state migration in 2020 contributed to stagnant population growth, exacerbating labor shortages and potentially hindering faster economic growth.
Chaska’s family doctor says eliminating the income tax would turn Minnesota into a Midwestern tax haven and boost the state’s economy.
Jensen also made eliminating the income tax the centerpiece of his plan to help Minnesotans deal with inflation, which has jumped to a 40-year high.
“In a time of crisis for the average family in Minnesota, why don’t we try to make sure people get to keep every dollar they earn?!” tweeted Jensen, who served one term in the state Senate.
Jensen was asked once if the plan is realistic given the gaping hole it would create in the state budget. He used the question to compare himself to Thomas Edison.
“When Thomas Edison created the light bulb, his friends told him it wasn’t realistic,” Jensen said. “…Is it realistic to talk about eliminating the personal income tax in Minnesota? I think it’s as realistic as inventing a light bulb or a computer in my phone that used to take up a room that size with mainframes.”
“If we can’t have that conversation, we’re never going to solve the problems with big, bold ideas,” he said.
But economists and Democrats say the plan would be a radical departure from a system that has provided valuable services like good schools, health care and infrastructure, a relatively light burden on working-class taxpayers and decades of relatively strong economic and income growth.
Minnesota has a steeply progressive individual income tax, meaning that higher-income households have a higher tax rate as a share of their income than lower-income households. Eliminating individual income taxes would disproportionately burden low-income Minnesotans while giving huge tax breaks to the state’s wealthiest.
“Progressive income taxes are an integral part of budgets that can meet the needs of all citizens, and they’re also really important for ensuring racial and socioeconomic equity,” said Neva Buktus, a state policy analyst at the Institute on Taxation. and economic policy. “Abolishing the personal income tax would completely throw that out the window.”
An Institute for Tax and Economic Policy is established every year ranking of state tax systems and how they promote income inequality.
The six least fair U.S. states are among the nine states with no individual income taxes. Minnesota’s progressive personal income tax makes it one of the least regressive in the country — 47th out of 50. That means the lowest income earners get a better deal than almost every other American when it comes to government and local taxes.
Minnesota’s progressive individual income tax has four rates, with those with the most taxable income paying the highest rate.
“If you’re going to eliminate the income tax, there’s no way to turn it around. Ultimately, it disproportionately benefits the wealthiest Minnesotans,” Buctus said.
If Jensen succeeds in eliminating or phasing out Minnesota’s individual income tax, he has only a few options to replace the revenue: raising Minnesota’s business taxes — unlikely given his corporate allies — or regressive sales and property taxes.
After the individual income tax, the tax that generates the most revenue is Minnesota’s sales tax. Because low-income Minnesotans spend most of their income, sales taxes hit them the hardest. Households with higher incomes save more money, which means they are not affected by the sales tax. The state sales tax is about 6.9%, and if it were to increase, lower-income households would feel the most pain.
One way to make up for lost revenue would be to force local governments to take on more responsibility, which would mean higher property taxes or reduced services.
The Minnesota Center for Fiscal Excellence recently cited this potential dynamic in a report at Jensen’s suggestion.
“A phaseout of the income tax would ensure the end of the ‘Minnesota Miracle’—the state’s 50-year approach to advancing geographic equity and providing local property tax relief through state aid—and usher in a new era of fiscal autonomy of local government from property taxation, local sales taxation and related funds.’
To close the $15 billion hole, Jensen may also cut costs. In the past, Jensen has decried general fund spending.
“We’re not spending those dollars on things, on issues, on initiatives that could really change the lives of Minnesotans — like infrastructure needs, things like that,” Jensen said in a video posted to his campaign Facebook page in April. “No, we’re dumping it into a general fund where the politicians can do it.”
In fact, about 40% of the total fund goes to education. Combined, more than 70% of the general fund goes to education, health and human services.
That means any effort to cut costs would almost certainly mean a sharp cut in money for school districts, hospitals and programs that help people with disabilities.
Cynthia Bowerley, the former commissioner of the Department of Revenue under the government. Tim Waltz and Mark Dayton told the A reformer that Jensen’s proposal to eliminate income taxes is only half the plan.
“Minnesotans deserve details on how Jensen would fill this hole with either massive sales tax increases on everyday items or significant cuts to education, health care for the elderly and people with disabilities, support for worker training to meet business needs, infrastructure and affordable housing,” Bowerly said.
The closest recent consequence of Jensen’s plan is Kansas, which enacted deep income tax cuts in 2012. Following the tax cuts, which required sharp cuts in education and Medicaid spending, Kansas’ economic growth lagging behind neighboring countries.
A Republican-controlled legislature later voted to raise taxes.
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