A few days ago we ran a comparison of the neighboring states’ personal income taxes. Now, we’ll add estate taxes to the mix.  The real solution, of course for Minnesota’s top standing in taxes, is to lop off the 2013 9.85% bracket and eliminate our estate tax.  Here’s our 2021 data. Source: Tax Foundation/Bloomberg.

State     Estate/Inheritance Tax Rate

Minnesota           13-16%

North Dakota      None

South Dakota      None

Iowa                     0-15%

Nebraska             1-18%

Wisconsin            None

(Exceptions discussed below)

Minnesota has a $3,000,000 exemption before the tax kicks in.  Only 4 other states in the nation have a lower threshold.  Iowa exempts lineal heirs, so your children won’t face taxes there. Nebraska has a small exemption and taxes lineals at one (1) percent.

We need to broaden this out to cover the country.  Twelve (12) states including the District of Columbia have estate taxes. Five (5) others have inheritance taxes.  And one, Maryland, has both taxes.  That should add up to 18 jurisdictions out of 51 that have some form of death tax as opponents often like to call them.

Only four (4) of the estate tax states have lesser exemptions than Minnesota.  The prize maybe ought to go to the states of Washington and Oregon.  Something in the water?  Followed closely or maybe even led by Massachusetts and Rhode Island.  H-mmm!  Coastal waters?  Connecticut was a top contender a few years back but now they have a seven (7) million exemption and are scheduled by 2023 to match the federal threshold which has risen to close to eleven and a half (11.5) million without getting into the portability issue that will raise it more.  So they are out of the running.  Four (4) and five (5) million exemptions are common.

On the inheritance tax side, we have five (5) or six (6) states.  This gets a little crazy to compare.  Pennsylvania doesn’t tax spouses but taxes lineal heirs at four and a half (4.5) percent with no exemptions but has some perks on farms and small businesses.  Iowa doesn’t tax lineals but goes up to fifteen (15) percent.  Maybe we can call it an uncle and aunt tax.  Kentucky doesn’t tax lineals and has a four (4) to sixteen (16) percent rate for others. Maryland exempts spouses and lineal heirs.  New Jersey has a one (1) million exemption but does not tax lineals.  Their rate is eleven (11) to sixteen (16) percent on others.  In sum, the inheritance tax doesn’t hit the immediate family much save Nebraska’s one (1) percent and Pennsylvania’s four and a half (4.5) percent.

That brings us to the point.  What do income and estate taxes mean to Minnesotans?  Or state economy?  Money needs to be spent in Minnesota to generate jobs and various tax revenues.  If you are hostile to wealth, it may well encourage those in the higher income ranges to move out of state and all our people lose.  Wealth migrates.  Unfortunately, the combination of our very high income taxes and estate tax becomes an incentive for leaving Minnesota.  If our heads are on straight, we should want these wealthier citizens to stay here and spend lots of their money here, buying goods and services and paying reasonable assorted Minnesota taxes.  The rich become political fodder rather than being viewed as an economic asset.  Here’s a challenge we present to the Minnesota legislature and the Governor.

Ideally, we’ve stated earlier is to rescind the 2013 personal income tax 25% hike and to eliminate our estate tax.  That’s not likely to happen, but here is what we propose for the Minnesota estate tax.  Tie the exemption to not less than the federal estate tax exemption.  A simple change that could help reduce outmigration.  We’ll elaborate and add a few more specifics in future writings.  Act now and docket this for the upcoming session.

That’s it.  Your move.

Bob Smith III

Founder, Gopher State Politics Institute

November 2021