Scott Jensen’s proposal to eliminate income tax would benefit Minnesota’s wealthiest

Plan would require steep cuts to schools, health care and/or sharp rise in sales or property taxes

By: - August 26, 2022 8:59 am

Minnesota gubernatorial candidate Scott Jensen speaks as supporters cheer behind him at an Apple Valley rally in May. Photo by Nicole Neri/Minnesota Reformer.

Republican nominee for governor Scott Jensen wants to eliminate the state income tax, which would create a $15 billion hole in the state budget every year. 

The income tax comprises a little more than half of state general fund revenue, which means eliminating it would require draconian cuts to programs like schools and Medical Assistance, or a steep increase in regressive levies like sales and property taxes — or some mix of both.

The GOP nominee has not provided specifics for how he would fill the $15 billion annual gap in the state’s general fund if he were to eliminate the income tax.

Jensen, whose campaign did not respond to interview requests, has said in social media posts and media interviews since floating 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 migration out of the state in 2020 contributed to stagnant population growth, which worsens the labor shortage and can inhibit faster economic growth. 

The Chaska family physician argues scrapping the income tax would turn Minnesota into a Midwest tax haven and jump-start the state’s economy. 

Jensen has also made eliminating the income tax a centerpiece of his plan to help Minnesotans deal with inflation, which has soared to the highest level in 40 years. 

“In a time of crisis for the average Minnesota family, why wouldn’t we try to make sure people can keep every dollar they earn?!” tweeted Jensen, who served a single term in the state Senate.

Jensen was once asked 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 lightbulb, his friends told him ‘That’s not realistic,’” Jensen said. “…Is it realistic to talk about eliminating Minnesota personal income tax? I think it’s as realistic as inventing a lightbulb or a computer in my phone that used to take up a room this size with mainframes.”

“If we can’t have that conversation we’re never going to solve the problems with big, bold ideas,” he said.

 

General fund flow chart

But economists and Democrats say the plan would be a radical departure from a system that has delivered valuable services like good schools, health care and infrastructure, a comparatively light burden on working class taxpayers and decades of relatively robust economic and income growth. 

Minnesota has a steeply progressive individual income tax, meaning households with higher incomes have a higher tax rate as a share of their income compared to lower income households. Eliminating individual income taxes would disproportionately burden low-income Minnesotans while giving huge tax cuts to the state’s wealthiest.

“Progressive income taxes are integral to having budgets that can meet the needs of all citizens, and they’re also really important in ensuring racial and socioeconomic equity,” said Neva Buktus, state policy analyst for the Institute on Taxation and Economic Policy. “Eliminating the personal income tax would completely throw that out the window.”

Each year, the Institute on Taxation and Economic Policy creates a ranking of state tax systems and how they foster income inequality.

The six least equitable in the U.S. 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 our lowest income earners get a better deal than nearly every other American when it comes to state and local taxes. 

Minnesota’s progressive individual income tax has four rates, with those with the most taxable income paying the highest percentage.

“If you’re going to eliminate the income tax, there’s no way to spin it. It disproportionately benefits the wealthiest Minnesotans by a long shot,” Buktus said.

If Jensen were to successfully eliminate or phase out Minnesota’s individual income tax, he only has a few options to replace revenue: increase 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 lower income Minnesotans spend most of their income, sales taxes hit them hardest. Higher income households save more money, which means it’s not touched by the sales tax. The state’s sales tax is about 6.9%, and if this were to increase, lower-income households would feel the sharpest 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 on Jensen’s proposal. 

“Phasing out income taxation would ensure the end of ‘Minnesota Miracle’ — the state’s 50-year approach to advancing geographic equity and providing local property tax relief through state aids — and usher in a new era of local government fiscal self-reliance from property taxation, local sales taxation and related means.” 

To close the $15 billion hole, Jensen could also cut spending. In the past, Jensen decried general fund spending. 

“We’re not dedicating those dollars to things, to issues, to initiatives that could really make a difference in Minnesota lives — like infrastructure needs, things like this,” 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 have at it.”

In fact, about 40% of the general fund goes to education. Taken together, more than 70% of the general fund goes toward education and health and human services. 

That means any effort to cut spending would almost certainly mean sharp reductions in money for school districts, hospitals and programs that help people with disabilities. 

Cynthia Bauerly, the former commissioner of the Department of Revenue under Govs. Tim Walz and Mark Dayton, told the Reformer that Jensen’s proposal to eliminate income taxes is only half of a plan.

Minnesotans deserve detail on how Jensen would fill that hole, with either massive increases to sales taxes for everyday items or with significant cuts to education, health care for seniors and people with disabilities, training support for workers to meet businesses’ needs, infrastructure, and affordable housing,” Bauerly said.

Jensen’s plan’s closest recent corollary is Kansas, which enacted deep income tax cuts in 2012. After the tax cuts, which required sharp reductions in education and Medicaid spending, Kansas’ economic growth lagged behind neighboring states

A Republican controlled legislature later voted to raise taxes.

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Michelle Griffith
Michelle Griffith

Michelle Griffith covers Minnesota politics and policy for the Reformer, with a focus on marginalized communities. Most recently she was a reporter with The Forum of Fargo-Moorhead in North Dakota where she covered state and local government and Indigenous issues. For two years she was also a corps member with Report for America, a national nonprofit that places journalists in local newsrooms and news deserts. She lives in St. Paul and likes to knit and watch documentaries in her free time.

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