Let’s start at the beginning: Minnesota has a record surplus of $18 billion.
That’s $18,000,000,000.
Sadly, that’s not enough for the DFL trifecta of Gov. Walz and the House and Senate in St. Paul. That’s right, despite an $18 billion surplus, the Democrat trifecta is raising taxes and jacking up fees on everything from car tabs to fishing licenses and everything in between. Additionally, they are collectively breaking 2022 campaign promises to 1) end the Social Security tax that punishes our seniors; and 2) giving back some of the surplus to the Minnesotans who were grossly overtaxed.
Not surprisingly, the DFL is catching the attention at the national level as they watch from a distance as Minnesota fiscally and socially sprints past California and New York to make its home on the far left of the political spectrum.
The DFL’s fiscal policy not surprisingly raised brows at the Wall Street Journal. In this case, the focus is on extending Minnesota’s corporate income tax to profits that businesses earn overseas. “Several states allow worldwide reporting as a corporate-tax option, but none mandates it,” the WSJ writes. “The move would alter tax bills for nearly all national and international companies that do business in Minnesota, including such home-based firms as Cargill and Best Buy.”
The bill’s authors say targeting these companies is the point. Rep. Aisha Gomez, chairman of the tax committee, promised last week that the change would “close a loophole and rightfully capture corporate profits hidden in offshore tax havens.” The sponsors admit to having only a loose sense of how much money it will bring in. “Whether worldwide combined reporting raised $1 or $1 billion dollars, it is the right thing to do,” Ms. Gomez said. In other words, punitive taxation for its own sake.
The entire editorial is below:
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Minnesota’s Global Tax Grab
Its planned levy on foreign profits via worldwide combined reporting could start a bad trend.
Minnesota progressives now run all of state government, and the new majority is doing what comes natural: raise taxes, and more taxes. Their misguided plan for a worldwide tax on business earnings in particular may spawn imitators if it passes in the once business-friendly state.
The tax change is part of an omnibus spending bill that Democrats hope to enact by May 22. It would extend Minnesota’s corporate income tax to profits that businesses earn overseas. Any company that owes taxes in the state would be required to report international earnings on top of its domestic taxable income. The state would then apply its 9.8% corporate income-tax rate to a combined income figure based on the company’s entire global profit.
That would be a first for a U.S. state. Several states allow worldwide reporting as a corporate-tax option, but none mandates it. The move would alter tax bills for nearly all national and international companies that do business in Minnesota, including such home-based firms as Cargill and Best Buy.
The bill’s authors say targeting these companies is the point. Rep. Aisha Gomez, chairman of the tax committee, promised last week that the change would “close a loophole and rightfully capture corporate profits hidden in offshore tax havens.” The sponsors admit to having only a loose sense of how much money it will bring in. “Whether worldwide combined reporting raised $1 or $1 billion dollars, it is the right thing to do,” Ms. Gomez said. In other words, punitive taxation for its own sake.
State economists don’t have a better idea of how much the tax will raise. As the Tax Foundation notes, the official estimate of $450 million over two years doesn’t account for how worldwide reporting will dilute Minnesota’s share of each company’s taxable income. And despite Democrats’ fixation on Cayman Islands accounts, most of that revenue will come out of the ordinary business that U.S. companies conduct overseas. It will also add to companies’ already hefty compliance burden, bringing foreign accounting rules into state filings.
The addition to large companies’ tax bills won’t be huge, but Minnesota already punishes businesses more than most states. Its 9.8% corporate tax rate is the nation’s second-highest, and it will be first next year when a New Jersey surtax sunsets. (Democrats also want to raise the top personal income-tax rate to 10.85%.)
One economic danger is that the tax will be an example to other states, creating a stack of state levies that claim a significant share of international business income. Democrats in the Elizabeth Warren school have long sought to snatch more corporate global income—including in a dozen states where lawmakers imposed taxes on foreign profits by the 1980s.
Those policies were scrapped under pressure from the Reagan Administration, which feared the taxes would squelch trade with the U.K. and Japan. Other nations share that fear. Even the Organization for Economic Cooperation and Development, which favors higher global business taxes, stopped short of endorsing mandatory reporting in its 2018 report on tax avoidance.
The prospect of this tax blunder traces to the turnover in St. Paul this January, when Democrats claimed unified control of the statehouse for the first time since 2015. Gov. Tim Walz took office in 2019 on a moderate platform, but the Trumpian turn in the state GOP has let Minnesota Democrats shift leftward. This isn’t your father’s Democratic Party.
