Open Letter to Governor Dayton and the Minnesota Legislature

May 12, 2014

Open Letter to Governor Dayton and the Minnesota Legislature

RE: Gift & Estate Tax and Population Migration

Thank you for repealing the gift tax and for increasing the estate tax exemption. This clearly was the right move for the future of the Minnesota economy and job growth.

We at Gopher State Politics have been examining IRS AGI tax data for the 2005-2010 periods. Using the Minnesota to Wisconsin taxpayer migration as a base of norm, we found that a population adjusted movement to South Dakota was almost exactly twice the rate of movement to Wisconsin and almost exactly three times the rate of movement (See our Blog: Why Do Minnesotans Move to South Dakota).

We also looked at the movement to North Dakota and to our chagrin and embarrassment discovered that out of 21 states those Minnesotans moving to North Dakota had the lowest average AGI of all 21 states and it appeared that we were providing a migratory labor force for North Dakota. Our lowest earners went to ND and our taxpayers having three times the average AGI of those going to ND went to Florida. (Blog, The Shame of Minnesotans Having to move to North Dakota). We were also surprised to learn that Bismarck had grown to 64,000.

It was also difficult to imagine how well Sioux Falls has been flourishing. Their population is now 161,000! Will it exceed St. Paul’s in the next decade? The day we were talking with them they had just picked off an impressive Minneapolis business. They really don’t want any publicity as it seems they view Minnesota as a great big Candy store with lots of business flavors.

Adding in the new Edina tax rate of 9.85% just exacerbates the situation. Our analysis and opinion “The Great Minnesota Tax Acts of 2013” (web site) gives a more thorough picture of the Minnesota tax climate vs. others. That study was cited in a new, best seller book which you have recently received (from others) through Barnes & Noble, An Inquiry into the Nature and Causes of the Wealth States  by Dr. Arthur B. Laffer and others. (Page 247 footnote 4 spelled out on page 290.)

Back to the estate tax, we would like to see it eliminated as the best choice. If that is not viewed as politically practical, we suggest that the 2015 legislature bring this into conformity with federal law. Otherwise, increase the exempt amount to $3M in 2015, $4M in 2016 and conformance to the federal in 2017 with COLA adjustments.  Currently $5.34M. Along with that the “claw-back” should be removed in 2015. It creates uncertainty and indefiniteness three years earlier or more than they may have been thinking of and encourages people to leave Minnesota.  It’s just a burr under the saddle.

Minnesota has been losing taxpaying population since the 1990’s. The IRS AGI data indicate as of the 2010 era that we were losing a net $350M per year in taxable income that’s an annual figure of those out-migrating. If we compound the likely number of years we have lost these taxpayers, the likely loss to the Minnesota economy of AGI may well exceed $1B. We are working on this now to develop a model without using a multiplier. That leads us to another aspect of this issue—Minnesota Revenue residency regulations and policies for ex-residents; the 182 days and the illogical 26 pointers.

A true and unequivocal “safe harbor” statute is needed. First, may we suggest a clear legal definition of a “day of residency.” Our thinking is that a day comprises physical presence in Minnesota for a 24 hour period from midnight to midnight anything less is not a day of residency. Next, we invest millions of taxpayers’ dollars in helping Minnesota become the world class medical destination; i.e. the Mayo Clinic and others. Then we punish former residents who have left for tax or other reasons, by counting their days of treatment here against residency days.

May we suggest in addition to a clear 24-hour definition of residency, that we exempt any time that people spend here visiting any licensed medical provider –therapists, chiropractors, dentists, doctors, surgery centers, hospitals, nursing homes and other licensed medical professionals—from counting as days of residency.

It would seem reasonable to us that if the definition, medical exemption and a few other changes were adopted—to make passage politically palatable—the residency days could be reduced from the 182 to 170 (a day a month). Why punish our economy? If ex-residents want to spend their money here, let them!
Their expenditures will help our workers, professions, businesses and state and local tax revenue streams. Abolishing the estate tax may keep more current residents here but tacking on a 25% Edina personal income tax rate increase is similar to using a cattle prod to encourage those hit hardest to move out of Minnesota.
Our 2015 legislative task:  1). Let’s phase out the estate tax. 2). Let’s put together and pass a sane “safe harbor” residency statute. Thank you.

Respectfully submitted,

Robert L. Smith, III

What a Great Evening with George Will...

I had such a great evening at The Center of the American Experiment, Annual Dinner. Great people, Great Friends and George Will. George was great as always, entertaining and informative... Thank you Mitch, Kim, Tom and the whole team for a very enjoyable evening! Bob Smith 3rd

http://www.americanexperiment.org

The Shame of Minnesotans Having to Move to North Dakota

For Immediate Release                                                            For Further Information Contact

Letter to the Editor March 2014                                               Bob Smith 3^rd      651-222-6888

The Shame of Minnesotans Having to Move to North Dakota

For the few months I’ve been examining the upper Midwest state personal taxation policies and their possible effect on population movement.  My original article, The Great Minnesota Exodus Tax Acts of 2013 available on www.gopherstatepolitics.blogspot.com indicates that North Dakota has no estate tax and that their individual income tax using an identical data example for all states was 73% lower than the Minnesota tax.

The next logical step was to check the out-migration population movement from Minnesota to its neighboring states. This has already been mostly done by the Center of the American Experiment in an April 2013 publication Minnesotans on the Move to Lower Tax States (AmericanExperiment.com) covering 20 states.  I only had to go to the TaxFoundation.org website to find the IRS AGI (adjusted gross income) tax data on their migration calculator for Minnesota-Wisconsin for the same 2005-2010 period to match the Center’s study.

Carefully reviewing the data, I was stunned by what appeared. Minnesotans moving to North Dakota had the lowest average taxable income of the 21 states migrating populations. We Minnesotans pride ourselves that we’re above average. Yet, here we are at the bottom. What a shame.

Then I looked further and discovered that the Minnesotans whose average taxable income was three times that of those moving to North Dakota went to Florida. Whoa! What kind of income and wealth redistribution is this?

Add to this the complicating fact that nearly as many are coming back from North Dakota as were going. Is this a Minnesota idea of a migratory labor pool? What is wrong with the Minnesota economy that we do not provide decent paying jobs for good people who will move to work?  We as a state are blessed with the elements needed for an energetic, job-producing environment. Why is not business and industry growing jobs?

One word.  Incentives.  Businesses need to be able to compete, thrive and make a profit.  The business climate, the job climate is all about the political climate.  A legislature that looks at business as a piggy-bank is not a job-producing legislature.  Business needs to be treated fairly and our actions must demonstrate that we are genuinely wanting to become a pro-growth state.  Please let us create a state where we don’t pit one against another, where low earners can find better jobs and where those at the higher end don’t feel that they have little choice but to move out of the state.

Bob Smith 3^rd

St. Paul, Minnesota

Untax the Rich? Dayton offers a different tone this year with gift, estate tax proposals

MINNPOST

By Doug Grow | 03/05/14

Gov. Mark Dayton, who used the theme “tax the rich’’ to win office, is expected to announce Wednesday a few ideas that sound like “untax the rich.’’ 

In his supplemental budget, the governor is expected to make significant changes in two taxes, a gift tax and an estate tax,  that are unpopular with the state’s wealthiest.

It appears that the governor is set to eliminate the gift tax, which he signed into law last spring, and align the state’s estate tax with federal estate tax law.

Of course, Dayton’s not alone in pushing tax cuts. House DFLers are racing to pass a broad-based bill that would cut personal and business taxes by $500 million. Senate DFLers, moving at a more modest pace, also are pushing cuts.

Republicans claim to be astonished as they see their DFL counterparts whack, hammer and cut taxes.

(more)

http://www.minnpost.com/politics-policy/2014/03/untax-rich-dayton-offers-different-tone-year-gift-estate-tax-proposals

Why Do Minnesotans Move to South Dakota?

This article was sent to the South Dakota Newspaper Association for publication.

For Immediate Release

Contact Information:

Robert “Bob” L. Smith, 3rd

gopherstatepolitics.blogspot.com

651-222-6888

Letter to the Editor – February 2014

Why Do Minnesotans Move to South Dakota?

Recently, I reviewed a study by the Center of the American Experiment, Minnesotans on the Move to Lower Tax States (American Experiment.org) covering 20 states based on the IRS tax return data that measures movement from state to state, and gives us a relatively accurate picture of population migration.

I wanted to see what the pattern was to our neighboring states based on a normalized out movement using raw data and not netting in & out movement nor considering money transfers. What the rate would be adjusted per 100,000 population using Wisconsin as the norm. That meant going to the Tax Foundation.org web site migration calculator to pull up the Minnesota-Wisconsin data for 2005-2010 to match the above study.

Between the years 2005-2010 Minnesotans moved to South Dakota at almost exactly twice the rate as they moved to Wisconsin, and moved almost exactly three times the rate to South Dakota that they did to Iowa. Once again, double the Wisconsin rate and triple the Iowa rate!

What attracts Minnesotans to South Dakota?  The most obvious reason is no personal income tax, and no estate tax and South Dakota is perceived to be more business friendly. Please refer to The Great Minnesota Exodus Tax Acts of 2013 at gopherstatepolitics.blogspot.com. This raises two questions. First, do some of the Minnesota taxpayers moving to South Dakota take Minnesota businesses and Minnesota jobs with them? Second, a larger issue looms, will the bad personal and anti-growth business taxes passed by the Minnesota 2013 Legislature accelerate movement to other more tax friendly states? And, more so, could these bad laws deter job-creating businesses from starting or expanding in Minnesota?

I’m very concerned. My hope is the Minnesota Legislature will have the acumen to take immediate corrective action to prevent the possibility of a downward-trending pace of potential economic recovery. Maybe we can hear from the South Dakota Chamber and the Governor’s Office of Economic Development with their thoughts, but it sure appears that South Dakota political leadership has already figured this out!

Bob Smith 3^rd

^{St. Paul, Minnesota}

Kiplinger Tax Map: Guide to State Income Taxes, State Sales Taxes, Gas Taxes, Sin Taxes-October 2013

The Kiplinger Tax Map: Guide to State Income Taxes, State Sales Taxes, Gas Taxes, Sin Taxes-Kiplinger...


October 2013 (Kiplinger Tax Map). Minn is among the 10 least friendly tax states. Hopefully, you will find the corresponding slide show. Interactive map is nice...  Bob

http://www.kiplinger.com/tool/taxes/T055-S001-kiplinger-tax-map/index.php?map=15#MKHf0QdpvaRWbRdo.03

Warning-Minnesota is Loosing its Wealth

http://tcbmag.com/Opinion/Columns/Editors-Note/Warning-Minnesota-Is-Losing-Its-Wealth


Another article of interest....


Bob

Twinned Cities following different Paths

http://www.nytimes.com/2014/01/13/us/twinned-cities-now-following-different-paths.html?hp&_r=1

NYT Article of interest...   Bob

Repeal the Warehouse Tax

Interesting article....  Bob

http://www.mprnews.org/story/2014/01/08/businesses-vow-to-seek-repeal-of-warehouse-tax?from=hp

Gone to Texas!!!

This letter to the Editor was published on January 2, 2014 in the St. Paul Pioneer Press

 

Five months ago I wrote to the Pioneer Press ("Had Enough") explaining the reasons my wife and I were leaving Minnesota for Texas. These reasons included long and cold winters, high taxes and liberal extremism characterized by excessive government spending and bizarre legislative priorities. I am writing now to declare that the move has been a rousing success and living in Texas has surpassed our expectations.

We don't miss the snow, cold and gloom of Minnesota winters while enjoying the economic freedom and prosperity in Texas that allows us to enjoy a lower cost of living and keep more of our money. The Census Bureau reported that Texas was the fastest growing state in the last year and if growth continues at the same rate the population will double by the year 2050. Apparently we are not alone in deciding to escape high taxes and intrusive government regulation. Some writers responded to my original letter claiming that Texas had inferior education and government services but our experience has been that the state delivers as good, if not better, services than Minnesota at a fraction of the cost to taxpayers.

In our brief time in Texas we have met a surprising number of Minnesota transplants who felt  like we did and left the state because they could not take it any more. We have family and friends in Minnesota and wish them and all state residents well but if state leaders do not change direction to reduce spending and taxes Minnesota is doomed to be a welfare state with no economic growth and a declining standard of living..        

Jack Munich
The Woodlands, Texas

(Wisconsin) State jobs agency debuts TV-ad campaign to boost state's business profile, lure new companies

State jobs agency debuts TV-ad campaign to boost state's business profile, lure new companies

January 05, 2014 6:05 am • KAREN RIVEDAL | Wisconsin State Journal | krivedal@madison.com | 608-252-6106

http://host.madison.com/wsj/business/state-jobs-agency-debuts-tv-ad-campaign-to-boost-state/article_0be57009-12ef-5d84-a656-5f7618a143ae.html

 David Kohler, president of long-time plumbing fixture manufacturer Kohler Co., is one of four top Wisconsin business leaders featured in the WEDC's first two television commercials, set to start airing Monday. This image is a screenshot from one of the ads, which will air in Minnesota and Illinois and are aimed at luring new business by touting Wisconsin's "strong business climate" and "strong workforce."

 To watch the Wisconsin Economic Development Corp.'s two new advertisements, go to: http://youtu.be/gggwXvJ562k

 Starting Monday, Wisconsin’s lead agency for economic development is launching its first television campaign aimed at luring businesses to the state.

 The Wisconsin Economic Development Corp. will use close to 10 percent of its $5.75 million annual marketing budget — itself more than triple last year’s $1.5 million budget — for the two ads, which feature brief testimonials from business executives touting the state’s "pro-business climate" and "strong workforce."

 "We can positively advertise Wisconsin without having to tear down anyone else," WEDC deputy secretary Ryan Murray said in an interview, contrasting Wisconsin’s campaign with the more biting promotions of states such as Indiana, which put up billboards reading, "Illinnoyed by Higher Taxes?" or the approach of Texas, which urges out-of-state businesses it wants to lure to "Get Out While There’s Still Time."

 Wisconsin’s more genteel approach features talking heads from four of the state’s most successful business enterprises, superimposed over a quick-moving series of characteristic exteriors, such as the Milwaukee Art Museum, the state Capitol and Grainger Hall, the School of Business building at UW-Madison.

 Featured leaders include Christopher Lofgren, CEO of Green Bay-based trucking giant Schneider National, and Louise Hemstead of Organic Valley, a cooperative of organic farmers in La Farge.

 The 30-second spots will run for eight weeks in three television markets: Chicago; Rockford, Ill.; and the Minneapolis-St. Paul area. They will air on cable news channels CNN, CNBC and Fox News.

 The ads will air during programs that target business leaders, including CNBC’s "Mad Money," "The O’Reilly Factor" on Fox and CNN shows hosted by Anderson Cooper, Erin Burnett and Wolf Blitzer, at a total cost for production and airtime of $537,000, according to Kelly Lietz, WEDC’s vice president of marketing.

 Lietz noted the campaign was a continuation of WEDC’s development in 2012 of the "In Wisconsin" brand now printed on all of its advertising and other communications. But one big difference is that this year’s campaign will be focused 75 percent outside the state, compared with 80 percent in-state last year.

 "The next step is to deliver that pro-business message to a national and global audience," said Lietz, who has been helping the agency try to rebound from a series of missteps after its founding in July 2011, including failure to track millions in loans, lack of internal controls and awards to ineligible applicants.

 In response to criticism that luring border businesses from other states may amount to poaching that undermines the region’s business climate — and, perhaps, escalates the competition between states to award companies increasing amounts of taxpayer-funded grants and credits — Murray said the campaign was focused more on encouraging businesses to expand here rather than to move entirely.

 Murray also said Wisconsin’s workforce, while featuring a below-average percentage of college graduates, has a strong work ethic and experience.

 WEDC leaders expect the new ad campaign, which also includes videos of the ads on 400 websites, to generate about 23 million views, some of which they hope will translate into site visits and calls to the agency’s toll-free phone number, 855-INWIBIZ .

 Beyond the TV ads, WEDC’s 2013-2014 marketing budget includes online advertising, ads in national business publications and marketing support for agency divisions that serve in-state businesses.

 Copyright 2014 madison.com. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.  Read more: http://host.madison.com/business/state-jobs-agency-debuts-tv-ad-campaign-to-boost-state/article_0be57009-12ef-5d84-a656-5f7618a143ae.html#ixzz2pdQ6JI9Y

Economic Consequences of Tennessee’s Gift and Estate Tax by Arthur B. Laffer, PhD

Economic Consequences of Tennessee’s Gift and Estate Tax

By Arthur B. Laffer, PhD

Monday, March 19th, 2012

Tennessee is one of 19 states with a separate estate tax and one of only two states with a gift tax, which has caused the state to underperform in comparison to other right-to-work states and other states with no earned income tax, low corporate tax, and low overall tax burdens according to authors Arthur B. Laffer, PhD and Wayne Winegarden, PhD.
The cost Tennessee has paid for its gift and estate tax in lost economic growth and employment is staggering. Had Tennessee eliminated its gift and estate tax 10 years ago, Tennessee’s economy would have been over 14% larger in 2010 and there would have been 200,000 to 220,000 more jobs in the state. And, the more robust economic growth would have benefited state and local government revenues adding between $7 billion and $7.3 billion to state and local coffers. (more)
http://www.laffercenter.com/economic-consequences-tennessees-gift-estate-tax/

Texas vs. California

Why so many people are moving from the Golden State to the Lone Star State by Chuck DeVore

Note: This article originally appeared at National Review Online on March 14, 2012.


One in five Americans calls California or Texas home. The two most populous states have a lot in common: a long coast, a sunny climate, a diverse population, plenty of oil in the ground, and Mexico to the south. Where they diverge is in their governance.


For six years ending in 2010, I represented almost 500,000 people in California’s legislature. I was vice chairman of the Assembly Committee on Revenue and Taxation and served on the Budget Committee. I was even a lieutenant colonel in the state’s National Guard. Before serving in Sacramento, I worked as an executive in California’s aerospace industry. (More)

http://www.texaspolicy.com/center/economic-freedom/opinions/texas-vs-california

Moguls Rent South Dakota Addresses to Dodge Taxes Forever-Bloomberg News Online

Here is an interesting article...

Bob

http://www.bloomberg.com/news/2013-12-27/moguls-rent-south-dakota-addresses-to-dodge-taxes-forever.html

The Great Minnesota Exodus Tax Acts of 2013

The Great Minnesota Exodus Tax Acts of 2013

As published in the St Paul Pioneer Press on December 27, 2013

Enjoy the read!!!

Bob Smith
Robert.L.Smith.3rd@gmail.com


https://drive.google.com/file/d/0B4g-dYJxw_wpUGdjNEVRRC15UW8/edit?usp=sharing

I was WRONG!

Letter to the Editor – I was WRONG...

In September, I wrote an article: The Great Minnesota Exodus Tax Acts of 2013 that is posted on www.gopherstatepolitics.blogspot.com. The article analyzed the adverse consequences of Minnesota’s new Edina income tax rate, gift & estate taxes, and referred to the warehouse tax on business.
Minnesota is ranked 45th in the Tax Foundation (www.TaxFoundation.org) 2013 State Business Tax Climate Index. My article suggested that with our new taxes, we might nose-dive to the bottom five in the next year’s index. The thinking being that we might be able to crack # 46...

I was wrong.

The 2014 Index has come out and we dropped to # 47. Wow! Not only did we plummet two rankings, but we were honored with special thoughts from the foundation. Minnesota suffers from complex, non-neutral taxes, with comparatively high rates. The 2013 Minnesota Legislature enacted a package of tax changes that reduce the state’s competitiveness, including a retroactive hike in the individual income tax rate.

Now, we are up against the big boys. Only New Jersey, California, and New York have worse state business tax climates and stand in our way as we claw towards the bottom.

But – take heart, Minnesotans – our legislature is known for its ability to achieve the "implosible".

Bob Smith 3rd
St. Paul, MN

The Great Minnesota Exodus Tax Acts of 2013

The Great Minnesota Exodus Tax Acts of 2013

By Robert “Bob” L. Smith, 3rd

Gift and Estate Taxes are money losers, plain & simple…

“Run, run, run for your lives – the legislature is in session!” Is an old political admonition, that is as true today, as it was then, especially if you’re a Minnesotan.  The Minnesota Legislature has enacted three new taxes that will combine to devastate the Minnesota economy going forward.

They are…

1.       The new special “Edina” individual income tax bracket of 9.85%, so named for the Wall Street Journal editorial, spoofing the legislature for going after the Edina mid-level executives.

2.       The new lifetime, cumulative “gift” tax coupled to the estate tax. The question is “gift” to whom? Arizona, Florida, Texas, our neighboring states? Minnesota and Connecticut are the only two states with a gift tax.

3.       The new ”expanded” sales tax known as the “warehouse” tax that goes after businesses performing warehousing and distribution functions. It’s so unique that apparently there is no other tax like it in the country. We’re number one!

A brief review of the immediate five-state business climate is in order as a point of departure for the following analysis, along with a sketch of tax policies for individuals. States of course need a robust private economy to generate growth, jobs, and the income that makes possible state and local government taxation. What is the current state of the business climate in Minnesota compared to our sister states? A recent CNBC report on the most favorable states to do business in, ranked South Dakota first, Texas second, North Dakota third, and Nebraska fourth. Another measure, the 2013 State Business Tax Climate Index published by the Washington DC- based Tax Foundation (www.TaxFoundation.org), ranked South Dakota number two, North Dakota 28, Iowa 42, Wisconsin 43, and Minnesota 45. Minnesota with the addition of the “warehouse” tax might well nose-dive to the bottom five next year.

With respect to individual income taxes it is similarly dismal. South Dakota locally and Florida and Texas in the southeast and southwest, respectively, have no state personal income taxes. Arizona has very low individual tax rates. Tennessee taxes only dividends and interest. Wisconsin and North Carolina have moved to, or are planning to move to, lower rates.

Federal individual income tax data (AGI) were formulated for a single person, over age 65 with social security, a modest pension, an IRA and some investment income. These identical data were then run by a tax accountant for each state. What a retiree might be dealing with in Minnesota, as compared to other states, is as follows: the comparable retiree in Arizona 61% less, North Dakota 73% less, Iowa 37% less, Wisconsin 36% less. Nebraska 9% less (See Table 1. Florida, Arizona, and Texas are added here as they receive the most “out-migration” from Minnesota.)

Now if state, gift, estate and inheritance taxes are added the picture becomes even gloomier. Forbes magazine this past year listed Minnesota as one of the states you do not want to die in. And, Forbes reinforced it for the current year. None of our neighboring states were listed. Iowa does have a somewhat outmoded inheritance tax, but it exempts lineal heirs such as children and grandchildren from the tax so that for practical purposes it has no such tax. Minnesota now has a cumulative gift tax combined with an estate tax that results in Minnesota having the worst, most onerous gift & estate taxes in the nation. Sorry, Connecticut, we have ousted you from your number one position.

Estate taxes are being phased out around the country. North Carolina just repealed theirs. Indiana has no estate tax and is phasing out their inheritance tax overtime. Tennessee eliminated its gift tax last year and is phasing out their estate tax by year end 2015. That leaves about a dozen plus states with estate taxes and a half dozen with inheritance taxes, two of which have both.

The Tennessee case is of special interest in terms of its potential lessons for Minnesota. Tennessee as a state had many good things going for it, including the fact that both political parties were strongly pro-growth. Nevertheless their economy continued to underperform. Why? A study dated March 2012 by Arthur B. Laffer and Wayne H. Winegarden, “The Economic Consequences of Tennessee’s Gift and Estate Tax,” supplied a convincing answer. The authors said that “Had Tennessee eliminated its gift and estate tax ten years ago, Tennessee’s economy would have been over 14% larger in 2010, and there would have been 200,000 to 220,000 more jobs in the state. And, the more robust economic growth would have benefited state and local government revenues adding between $7B and$7.3B to state and local coffers.”

A 14% larger economy and thousands more jobs over the next decade certainly would be a godsend for Minnesota. Adjusting for population, a rough bonus of $5.8B to $6B in revenues for state and local governments would be the result, an outcome that should obviously appeal to both the legislative and executive branches.

Minnesota is currently at the beginning of the gift tax debate rather than at the end. We have a chance to avoid a repeat of the Tennessee debacle. Connecticut is the only other state in the nation to have a gift tax and their exemption is twice that of Minnesota ($2M as opposed to $1M). The estate tax needs to go as well. Adding a gift tax to our estate tax at this economic juncture is counter-productive - indeed it is tantamount, along with the warehouse tax, to an economic suicide pact.

The Federal gift and estate tax exemption currently at $5.25M is substantially above that of Minnesota’s. Illinois’s is four times larger. Iowa’s inheritance tax (no estate tax) is zero for lineal heirs. Nebraska has no estate tax but a minimal inheritance tax for immediate relatives (See Table 2.) It does the average Minnesotan little good to have the federal death tax rate curtailed if the state steps in to negate the benefit of raising the federal exemption. It especially does Minnesota little good if other states do not follow suit and in fact reduce or eliminate their estate taxes. Again Arizona, Florida, Texas, North & South Dakota, and Wisconsin have no estate or inheritance taxes.

There is much more to the three new Minnesota taxes than just the negative economic effects. There also is the human side of this issue. The taxes hit hard at the senior citizens, their children and their grandchildren. Seniors will be hit hard because some will increasingly face the tough decision to leave Minnesota and their families for states that offer a safe haven from gift and estate taxation. Seniors want to be near their families but they also want to leave their children something. They have worked hard to achieve that end. When seniors feel more secure and even modestly affluent, the so-called “wealth effect,” they spend more which means more economic activity. Mr. Laffer states the wealth effect by one estimate may be as much as nine cents in expenditure for each dollar of wealth – that is, a senior may spend around one-tenth of their perceived wealth over the long-term. If they feel poorer, seniors may spend significantly less. Meanwhile the most ambitious young people, the entrepreneurs and the young professionals, may move to the west, or the Sun Belt, to escape the confiscatory taxes that cramp their aspirations.

Losing wealth (and people) to other states is obviously not good for Minnesota. Dislocating families is not pretty. Over taxing the so-called “rich” may be short-run good politics, but it has negative long-term human and economic consequences. Mr. Laffer points out that gift and estate taxes do not re-distribute wealth; they merely re-distribute population. Voting with one’s feet is not the referendum we want for Minnesota. The more wealth that flees the state, the less revenue there is to tax and the less attractive we are for the ambitious young and all but the most highly affluent seniors.

As for businesses, let’s not kill the geese that lay the golden eggs. The warehouse tax does not bode well for the Minnesota business climate and job creation. Nice politics, not so nice when the tax revenues slip. The warehouse tax is one of the worst measures passed by the Minnesota legislature in recent years and there is an overwhelming case for its repeal.

We as a nation want to bring back offshore businesses and their capital. We as Minnesotans should want to repatriate ex-residents and their funds that moved to other states to escape overwhelming taxation. One way to begin is by creating a tax friendlier place to enjoy living in and at all costs we should discourage further “out-migration.” We really need to put an end to the politics of class warfare. We will all lose if our most enterprising fellow citizens and prominent businesses leave the state. We will all benefit from sound economic policies and reasonable taxation.

Gift and Estate Taxes are money losers, plain and simple. They cost state and local governments lost tax revenues in amounts greater than gift and estate taxes bring in. The Wall Street Journal Estate Tax Editorial of August 20, 2013, awarded us – Minnesota – the grand prize for (tax) self-abuse. Why should we shoot our self in the foot and in the state wallet? We do not need to repeat Connecticut and Tennessee’s economic fiascos. Out with gift and estate taxes!

The Legislature ought to repeal the gift tax in its entirety, and, for good measure ought to enact a phase-out of Estate Taxes over a three year period. This did not occur during the September 13, 2013 Special Session.  The Governor and the Majority and Minority Leadership of both Chambers need to come out with an unequivocal position that these taxes will be eliminated in the 2014 Session.

Table 1

2012 State Individual Income Tax Comparison (Minnesota = 100)

State	Percentile	Difference
Minnesota	100	---
Wisconsin	64	-36%
North Dakota	27	-73%
South Dakota	No Tax	---
Iowa	63	-37%
Nebraska	91	-9%
Arizona	39	-61%
Texas	No Tax	---
Florida	No Tax	---

*A single person over 65 years old with a pension, social security, IRA & some investment income.

Table 2

2012 Estate & Inheritance Tax Comparisons ($3,000,000 Estate, Non-business, non-farm,

4 children as heirs)

Entity Federal	Estimated Estate Tax Owed - Non-business, non-farm
Minnesota (a)	$182,000
Wisconsin	None
North Dakota	None
South Dakota	None
Iowa (b)	None
Nebraska (c)	$28,400
Arizona	None
Texas	None
Florida	None

 (a) Minnesota $1M exemption applied (Minnesota Revenue Website Calculator)

(b) Iowa Lineal Heirs Exempt

(c) Nebraska 1% Rate for immediate family, $40,000 exemption/recipient

 **********************************************************************

The author, Bob Smith is a life-long resident of Minnesota with roots in the investment business.  He is available for interviews and further comment on these issues and encourages you to share this analysis with your local legislators for comment. He can be reached by phone at: 651-222-6888. Clips of any published articles based on this commentary and analysis may be mailed to: Bob Smith, 480 St. Clair Ave., St. Paul, MN 55102. Email at ROBERT.L.SMITH.3RD@GMAIL.COM and blog at http://gopherstatepolitics.blogspot.com