New Release: Comparison of Individual Income Tax Burdens by State

Contact: Mark Haveman or Aaron Twait: 651-224-7477

The Minnesota Center For Fiscal Excellence (MCFE) today released its 2019 edition of Comparison of Individual Income Tax Burdens by State.  The study, based on tax year 2016 information, is the ninth edition of this report now published on a biennial basis.

The study models 38 households based on different combinations of income, age, and size and calculates how much state and local income taxes they would pay in each of the 41 states that have an income tax plus the District of Columbia.  It shows how state and local income tax burdens vary between states while offering insights into state tax policy issues such as tax competitiveness, income tax progressivity, and state earned income tax credits' impacts on low income households.

The report also includes:

• a comparison of the value of state earned income tax credits for selected taxpayer profiles
• latest findings on other methods of comparing individual income tax burdens
• tax year 2016 federal income and payroll tax liabilities for all households studied
• changes to state tax rates and/or brackets from tax year 2014 to tax year 2018

Minnesota Highlights

• Based on the difference in effective tax rates (tax burden divided by income) between the lowest ($20,000) and highest ($1 million) modeled households, Minnesota has the most progressive income tax system in the nation.  If state earned income tax credits are ignored, Minnesota ranks 3rd in structural progressivity.
• Minnesota has one of the nation's most generous earned income tax credits based on both total amount offered and accessibility to the credit at higher incomes.  For married joint filers at $35,000 income only Maryland and the District of Columbia provide an earned income tax credit with a benefit that is within 25% of Minnesota's benefit.  As a result Minnesota has the lowest income tax burden in the nation for this filer type.
• Of the 30 filer types with positive Minnesota state income tax burden, the net tax is greater than the U.S average for 25 and less than the U.S. average for 5.  Married households under $75,000 in income and head of household filers under $50,000 income are most advantaged relative to other states.

These results do not include the effect of the Minnesota Social Security subtraction enacted for tax year 2017.  Had the state enacted the Social Security subtraction for tax year 2016 instead of tax year 2017, only five senior filer types would have been affected.  Four of these five types would have experienced quite modest improvements in tax rankings and in taxes as a percent of U.S. average (1-3 spots and 7%-15% decline respectively).  The exception is single senior filers at $35,000 of income whose taxes as a percent of U.S. average would decline by over half.

It is important to note states' conformity responses to the TCJA in 2018 are not included in this study.  That impact (and other state policy developments) will be presented when our payable 2018 report is issued in 2021.