Minnesota Wealth Tax | Intangible Personal Property Tax

A new bill introduced in the Minnesota House and referred to the Taxes Committee last month threatens to upend taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. policy in the state. HF 4616, the first of its kind, but joining the litany of proposals around the country that seek to tax non-real assets, imposes an annual tax of 1 percent on “taxable wealth” exceeding $10 million for individuals and trusts from tax year 2026 onward.

Taxable wealth under this bill is defined as the fair market value of a taxpayer’s real or personal property (tangible or intangible) legally subject to Minnesota’s jurisdiction, minus all debts and financial obligations. It does not seek to tax out-of-state assets, but will tax intangible personal property (e.g., stocks, bonds, business interests) based on the taxpayer’s domicile (for individuals) or the trust’s state of residence. This means that for qualifying Minnesota residents, the law stipulates that all intangible assets held worldwide, as well as real estate and tangible assets located within the state, would be subject to the tax. Property values are to be determined the same way as in the federal estate taxAn estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits, at the time of death. The tax is paid by the estate itself before assets are distributed to heirs. (IRC § 2031)—generally fair market value, which may require appraisals for illiquid assets like private businesses, farms, art, etc.

Minnesota’s tax code is already one of the least competitive in the country. This new tax would make a bad situation worse.

On average, the tax is predicted to bring in $290 million, from approximately 5,600 individuals, in each of the three fiscal years after the tax is effective, according to the state’s Department of Revenue. Of course, this is only a fraction of the money needed to bridge the state’s existing budget gap, which is projected to create a structural shortfall of $2.7 billion in FY 2026-27, increasing to $3.357 billion in FY 2028-29.

Wealth Taxes Are Novel in the US, but Have Been Unsuccessful Globally

If passed, this would be the first broad state-level wealth taxA wealth tax is imposed on an individual’s net wealth, or the market value of their total owned assets minus liabilities. A wealth tax can be narrowly or widely defined, and depending on the definition of wealth, the base for a wealth tax can vary. in the US (several states like California, Illinois, and New York have considered similar proposals, but none have enacted them). Minnesota’s $10 million threshold is notably lower than others discussed nationally.

Just because the tax is bold and new in the US does not mean it has not been tried elsewhere. A Tax Foundation analysis shows many such policies were reversed in Europe once their consequences became visible within a few years. Non-neutral tax policies frequently fail to raise the amount of money predicted by their proponents, while also causing outsized economic damage. The same is especially true of wealth taxes, which are a tax on a stock of value held by taxpayers, as compared to taxes on income and capital gains, which are a tax on flows of money. This distinction makes them especially prone to the revenue shortfalls and economic distortions that have led country after country to abandon them.

A wealth tax on assets is tremendously distortive, discourages capital formation, and, at the very least, double taxes income. Wealth taxes exponentially decrease the returns to investments by repeatedly taxing the stock of capital—an economic harm that compounds over time as the marginal cost of the money taxed away increases. Simulation research on a 1 to 2 percent wealth tax suggests that this would depress long-term capital stock by 13.3 percent, reducing US GDP by 4.9 percent. Similar findings have been implied for Germany. Along with the decline in capital, we could expect a reduction in risk-taking and entrepreneurship that is often funded by surplus capital, further reducing long-term prosperity and job growth.

Estimates of tax revenues that would accrue to Minnesota are also likely severely overstated. High-net-worth individuals and their capital are very mobile and are likely to flow to wherever they are welcomed rather than penalized. France’s former wealth tax (ISF) was associated with EUR 200 billion of capital flight between 1988 and 2007, reducing GDP growth by 0.2 percent each year. Norway saw an exodus of 30 wealthy entrepreneurs in 2022 and a budget shortfall when the wealth tax was raised to 1.1 percent. This figure was higher than the number of super-rich departures in the previous 13 years combined.

As a result of low revenues and observed economic harm, many OECD countries that used to have wealth taxes have repealed them. This includes Austria (1994); Denmark and Germany (1997); the Netherlands (2001); Finland, Iceland, and Luxembourg (2006); and Sweden (2007), with France finally repealing its wealth tax in 2018. Among OECD countries, only Colombia, Norway, Spain, and Switzerland still have a wealth tax. Even modest wealth taxes can trigger relocation to other jurisdictions, eroding the tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates.. (Behavioral responses are large because the tax applies, in most cases, unless assets or residency are moved.)

Wealth Tax Comes with Outsized Economic Costs, Low Revenue Potential

Compared to the revenues that are likely to be raised from this tax, compliance and enforcement costs could be disproportionately high. This is because valuing illiquid assets every year would require the creation of another government system, with the entire process potentially subject to inaccuracies, inefficiencies, and disputes in the absence of market transactions. Asset-rich but cash-poor individuals (e.g., family business owners and farmers) may have to sell assets or borrow to pay, distorting markets and forcing inefficient decision-making simply to comply with the tax. Spain saw taxable wealth drop 42-51 percent with the reintroduction of its wealth tax in 2021.

Minnesota’s wealth tax, as written, would likely face legal challenges, though the more pressing concern is its potential to be economically destructive. While constitutional questions are important, these are secondary to the fundamental inefficiencies such a tax creates. Forcing illiquid taxpayers to sell productive assets simply to meet their tax obligations undermines capital formation, distorts investment decisions, and can drive wealth—and the economic activity it generates—out of the state entirely. The legal debates, while worth noting, are ultimately a symptom of the consequential problem: wealth taxes are poorly designed instruments that impose disproportionate economic harm relative to the revenue they generate.

This is confirmed by IRS migration data. These show that states with higher taxes and more complex tax structures have consistently seen sustained outflows of income and residents toward more competitive, lower-burden alternatives. Minnesota, already a high-tax state, would be accelerating that dynamic. Wealth taxes are economically destructive, create multiple layers of taxation on the same income, collect less revenue than most predict, and will add to the already complex tax structure that drags Minnesota’s tax competitiveness down. Policymakers in St. Paul should instead focus on broad-based, sound tax reform that will make Minnesota a more attractive place for residents and businesses and create long-run revenue growth for its treasury.