Across the United States, people are fleeing “Blue States” with their high taxes, spending, and regulatory burdens, for “Red States” which offer greater economic freedom.
Rather than heed this lesson, several “Blue States” — and some which are only pale blue — are doubling down, offering even more of their losing formula. Minnesota is one of these states.
Ope, Just Gonna Tax Ya There
Minnesotans are some of the most heavily taxed citizens in the United States.
The Land of 10,000 Lakes has the sixth highest top rate of state personal income tax and this rate kicks in at a relatively low level of income; only Oregon has a higher rate that kicks in at a lower level. And Minnesota doesn’t just tax “the rich” heavily; for 2025, the average-earning, single-filing Minnesotan handed over a share of their wages to the state government in income tax greater than in 43 out of 50 other states. Altogether, Minnesota’s per capita tax burden ranks eight out of 50 states.
These high taxes are necessary to fund a level of General Fund spending which is higher, in per capita terms, than in 45 other states. Minnesota exemplifies exactly the “Blue State” policies that Americans are fleeing.
Minnesota’s Proposed Wealth Tax
Yet, even with taxes high and rising, spending has outpaced them. Minnesota’s state government has spent more than it has collected in revenue in every year since 2024 and is forecast to continue doing so until at least 2029.
To help plug this gap, Minnesota’s Democrats have introduced a bill to enact a state wealth tax. This proposal would establish a one-percent tax on all “taxable wealth” over $10 million, with “taxable wealth” comprising the sum of a taxpayer’s real or personal, tangible or intangible property located in Minnesota, minus the sum of all debts and financial obligations owed by the taxpayer.
The state’s Revenue Department estimates that the tax would hit about 5,600 people annually and raise $288.3 million in Fiscal Year 2027, or 0.8 percent of total revenues, with that number increasing by about $2 million annually in subsequent years.
Let me be clear: Minnesota’s wealth tax will not raise $288 million.
For starters, that estimate doesn’t include the cost of administering the tax. The liability would be calculated in the same manner as for the federal estate tax, but, unlike the estate tax — a state version of which Minnesota already has — it will be assessed annually. The usual problems of valuing certain assets such as “fine art, wine, antique cars, jewelry, and other collectibles [where] there is often not a liquid market that can be referenced for valuation purposes” will be greatly multiplied, as will the difficulties in valuing intangible assets, like patents and copyrights. The authors of the bill have no idea how much this will cost.
More importantly, the estimate assumes that nobody responds to avoid the tax. This is highly unlikely, and there are several options open to those wishing to avoid it.
Those Minnesotans targeted might move. This is often dismissed as a “myth.” However, a 2020 paper published by the American Economic Association suggests otherwise.
The paper found “growing evidence” that taxes influence where people live — within and across countries — adding another efficiency cost policymakers must consider.
More specifically: “This body of work has shown that certain segments of the labor market, especially high-income workers and professions with little location-specific human capital, may be quite responsive to taxes in their location decisions.”
Minnesota’s proposed wealth tax would provide a strong incentive to move. Someone with $11 million “taxable wealth” yielding a return of five percent would see a 16.8 percent increase in their total tax bill which, in Minnesota, includes a “Net Investment Income Tax” on top of the high personal income tax. And this hike would be larger if the return fell; by 27.9 percent at a return of three percent.
Those Minnesotans targeted don’t even have to move to avoid paying this tax. They could keep reported wealth just below that $10 million threshold by liquidating their investments to finance consumption spending. This would reduce savings, which, in an open economy, might be offset by increased foreign capital inflows, resulting in a larger trade deficit and/or lower long-run economic growth.
Either way, the effect is the same: the base of the wealth tax shrinks.
Recent events in Washington State, which has proposed a one percent tax on tradable net worth above $250 million, reveal the problem with state projections from wealth taxes. State economists had projected $3.2 billion in new revenues from the tax. But as the Tax Foundation’s Cristina Enache wrote, “$1.44 billion, almost 45 percent, would have been collected from Jeff Bezos.” Unfortunately for state lawmakers, the Amazon founder had other ideas. He moved to Florida, taking nearly half of that estimated revenue with him.
Bezos may be exceptionally wealthy, but the phenomenon applies everywhere. In California, for example, the base of the proposed wealth tax comprises just 200 people — out of a population of nearly 40 million. Many of these individuals will likely exercise the power of exit, as Bezos did.
This is why most jurisdictions that had wealth taxes have ditched them. Thirteen OECD countries imposed wealth taxes in 1965, but only three did as of 2025.
Compounding Policy Effects
Let us stick with the comparison of estate taxes and wealth taxes a moment longer. A 2023 paper by economists Enrico Moretti and Daniel J. Wilson looked at “the effect of taxes on the locational choices of wealthy individuals by examining the geographical sensitivity of the Forbes 400 richest Americans to state estate taxes.”
First, they found that “their residential choices are highly sensitive to these taxes, as 35 percent of local billionaires leave states with an estate tax. This tax-induced mobility causes a large reduction in the aggregate tax base.”
Second, they found that “the revenue benefit of an estate tax exceeds the cost for the vast majority of states.” But Minnesota is not among this majority. Moretti and Wilson found that “the benefits of having [an estate tax] exceed the costs in all but three high-[Personal Income Tax] states: Hawaii, Minnesota, and Oregon.”
There is a trade-off: You can have a high rate of estate or wealth taxation or a high top rate of income tax, but you can’t have both. Given this, another proposal from Minnesota’s Democrats, to impose a new, top, fifth income tax bracket of 11.45 percent on income above $600,000 (single) or $1,000,000 (joint) is fiscal masochism.
During the last century, economists were provided with two incredible natural experiments: the division of Germany and the Korean Peninsula into countries with diametrically opposed economic models. The results were clear. America’s Blue States seem intent on running the experiment again.
