Here’s who would benefit from Scott Jensen’s income tax plan

Republican nominee for governor Scott Jensen is campaigning on abolishing the state income tax. At $15.7 billion or 54% of projected 2023 general fund revenues, it is a costly idea that would force some combination of drastic increases in sales and property taxes, and draconian cuts to major public programs like schools, hospitals, roads and parks.

In static terms, replacing all of Minnesota’s income tax revenue would require more than tripling the state sales tax, or increasing local property taxes by about 150% statewide. Jensen has suggested he would make up some revenue by instituting sales tax on clothing and groceries, but those measures combined would raise only $1.5 billion in revenue while increasing the cost of living for all Minnesotans.

The plan would mean lost services and public sector jobs, as well as increased tax burdens on low- and middle-income households.

But it would be a boon to Minnesota’s highest earners. Here are some numbers and figures:

The chart above shows how much of Jensen’s tax cut would go to Minnesotans in different income groups. The bars represent the share going to each income decile — the lowest 10% of earners who pay no income taxes and thus do not benefit from the cut, all the way up to the highest earning 10%, who pocket nearly 60% of the total.

As you can see, the top 1% alone gets over 25% of the tax cuts’ entire value.

The next chart shows the average dollar savings from income tax elimination for various income groups. Earners in the 96th-99th percentiles — those making between roughly $370,000 and $650,546 per year — save more than $27,000 on average, while those in the top 1% save an estimated $147,000 annually. 

Assuming that Jensen’s plan would also cancel the Working Family Credit — which rewards lower-earning families with a positive income tax refund — earners in the bottom fifth would actually lose money compared to the current structure.

The last chart uses some specific examples to show how Jensen’s income tax cut would benefit high-paid CEOs compared to median earners in a range of occupations. Taking CEO pay data compiled by the AFL-CIO and wage data from the Minnesota Department of Employment and Economic Development, we calculate tax savings based on labor income, assuming joint filing status and two children. 

The chart illustrates how ending Minnesota’s progressive income tax would increase inequality by handing fat stacks of cash back to those already making the most.

But in truth these figures understate the impact of Jensen’s plan because they do not reflect the exemption of investment income, which would also result from eliminating the income tax. Currently, Minnesota, like most other states with an income tax, applies the same tax rate to income from work as it does to capital gains from the sale of stock or other assets. But Jensen’s plan would cut these rates to zero, as well. In fact, while the CEOs shown here each made over $1 million in salary and would save hundreds of thousands of dollars each year on that alone, they averaged over $20 million each with stock options and other compensation included, and would each save millions more when they sold those assets. Jensen’s plan would end taxation on the returns to accrued wealth — saving the wealthiest Minnesotans millions over the coming decade.

And while regressivity, skyrocketing inequality, and the loss of essential public funds are three very strong reasons to reject Jensen’s proposal, there’s another consideration: Although our tax code is race-blind on its face, the reality of racial inequality in the United States and in Minnesota in particular means that top-heavy tax cuts like Jensen’s would go overwhelmingly to white Minnesotans. Meanwhile, Black, Indigenous and other Minnesotans of color would suffer with worse services and likely higher sales and property tax bills.  

Detailed statistics for income and race are difficult to find, but here are a few numbers to illustrate this point: Out of nearly 300,000 Black Minnesotans, more than 26% — over 77,000 residents — earn less than the federal poverty wage and would see little or no benefit from Jensen’s $15.7 billion tax cut.

Comparing savings for median earners by race, Census data shows that the median white Minnesotan makes $80,862 compared to $47,739 for the median Black Minnesotan. Based on 2021 brackets and deduction figures, the median white earner, married with two children, would save around $2,538 compared to just $693 for the median Black earner with the same filing status.

But even this understates the racial skew of Jensen’s plan because we know that white Minnesotans dominate the upper-income groups that would receive the most benefit. One 2014 study found the top 1% was more than 90% white and only 0.2% Black. This means that Jensen’s plan would not only drastically increase income inequality overall, but would exacerbate Minnesota’s racial income disparities, which are already some of the largest in the nation. 

The enormous cost and regressivity of Jensen’s plan has limited its mass appeal. Jensen has defended his plan along similar lines as large tax cut proposals in other states, saying it would boost economic growth and necessitate wiser spending, including during a recent appearance on MPR. 

Thankfully, just a few Republicans have endorsed Jensen’s plan so far. Among them are Erik Mortensen, R-Shakopee, who was expelled from both the Republican and New House Republican caucuses, and Mark Bishofsky, running for the Minnesota House in district 33B.