Tax Policy is Driving Billions of Dollars from Minnesota; Twin Cities Business Details How Much, and Where It’s Going

MINNEAPOLIS--()--More than 3,000 Minnesotans with an estimated combined total of $2.1 billion in taxable income, $16.7 billion in average net worth and $31 billion in gross estate value left, or began leaving the state beginning in 2014, according to results from an independent study conducted by Twin Cities Business.

Some 72 percent of these individuals did so because of the state’s taxes and tax collection policies, according to the 150 wealth management, accounting, legal, banking and other professional services firms that participated in the study. This indicates tax policy has led to the migration of an estimated combined total of $1.5 billion in taxable income, $12 billion in average net worth and $22 billion in gross estate value since 2014, the first year after which taxes were raised on Minnesota’s highest-income households.

Such wealth migration is expected to continue. By 2020, more than 12,000 Minnesotans are expected to exit with an estimated combined total of $5.2 billion in taxable income, $63 billion in average net worth and $122 billion in gross estate value. This represents nearly half of Minnesota’s top 1 percent of taxpayers, based upon the Minnesota Department of Revenue’s 2015 Tax Incidence Study. The top 1 percent paid 26 percent of all state income taxes in 2012. New wealth also will move into Minnesota by 2020. But the state has in recent years lost more wealth than it has gained, and annual outflows surged after tax increases took effect in 2013.

“These findings are meaningful given Minnesota’s policy course has been heavily influenced by what happens to net tax revenue,” says Mark Haveman, executive director of the Minnesota Center for Fiscal Excellence, which provides analysis, consultation and legislative testimony on issues of tax policy and public finance. “The thinking has been it’s acceptable to lose some high-net-worth individuals because the loss of tax revenue from those who do leave will be more than offset from revenue gained by those who stay. These results suggest that whole premise needs to be reconsidered.”

Florida tops the list of states respondents indicated is the most popular destination for those clients who moved or began moving from Minnesota within the last two years. Next most popular were Arizona, Texas, Nevada, South Dakota and Colorado. More information – including how wealth migration may affect Minnesota’s economy and charities – is available online at http://bit.ly/MN-Wealth-Exit and http://bit.ly/1pOJnZm. Twin Cities Business also is hosting a webinar on this subject, with guests Peter Nelson from the Center for the American Experiment (who, separately, found a significant spike in wealth migration in 2014 by analyzing IRS data), and Joel Germershausen from Baker Tilly, noon Central time, Thursday, March 24 (see http://bit.ly/1MfbPh2).

Methodology:
With assistance from Minneapolis-based research firm Morris Leatherman Co., Twin Cities Business conducted a wealth migration study by asking 400 wealth management, accounting, legal, financial advisory, private equity/investment banking and related firms 16 questions about their clients. These firms were asked to share the percentage of their clients who plan to stay in Minnesota five years from now, and the reasons they give as to why; and the percentage of clients who do not. Firms were asked to share the percentage of their clients who moved or began moving out of Minnesota within the last two years, and why. Answers to other questions provided median taxable income, gross estate value and net worth of these firms’ Minnesota clients. The 400 firms were mailed a questionnaire (viewable at http://bit.ly/22s8saE), emailed reminder notices and then called (those who had not responded by mail) to complete the questionnaire by phone if possible. This study took place over a six-week period ending Feb. 26 and received responses from 150 firms. Findings cited above are based upon interpolated medians, which are considered more conservative than the use of averages, and were formulated by, or with assistance from Morris Leatherman.

About Twin Cities Business:
Minneapolis-based Twin Cities Business produces award-winning news, analysis, features and commentary about the state’s most interesting and important business leaders, challenges and opportunities daily at TCBmag.com, twice weekly in its “Briefcase” e-newsletter, and monthly through Twin Cities Business magazine and live events. It is owned by MSP Communications.

Contacts

Twin Cities Business
Dale Kurschner, 763-567-9241

Release Summary

Study finds Minnesota's tax policy is leading thousands to move, taking with them billions of dollars in taxable income, gross estate value and net worth.

Contacts

Twin Cities Business
Dale Kurschner, 763-567-9241