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Minnesota: Taxes prompt some wealthy to consider moving

ST. PAUL — Studies show raising income tax rates doesn’t lead to an exodus of wealthy people to lower tax states.

A key source of revenue in the Minnesota’s freshly minted budget is a new higher income tax rate that the top 2 percent of earners will pay. The tax increase moves the top rate from nearly 8 percent to nearly 10 percent.

Some high earners in Minnesota say now that the Legislature has put higher taxes on the wealthiest in place, they’re considering moving to states with lower, or no income taxes.

Among them is Mike Corbin, who has a law practice in Faribault. Corbin takes issue with the argument that the new tax will simply have high earners like him paying their "fair share — so much so that he’s thought about relocating his business.

"All those euphemisms are nothing more than poll-tested, feel-good phrases," Corbin said. "At some point it doesn’t make economic sense to continue to stay in Minnesota."

The new tax tier is expected to bring deliver more than $500 million in new revenues a year to state coffers. With it, Minnesota has the fourth highest income tax rate in the nation.

Another wealthy Minnesotan who is displeased with state Legislators is Mike Tierney, a retired businessman who lives in Deephaven, Minn., near Lake Minnetonka.

From his marble-floored home, Tierney can see his gardener planting shrubs on a beautifully groomed lawn. He did very well for himself in the injection molding business and strongly disputes the notion Minnesota’s tax system is now fairer because people like him will be paying more.

Tierney said the new tax will cost him "thousands" more every year.

"It definitely will come out of somewhere," he said. "I doubt if we’re going to get rid of a car, stop traveling or we’re going to change our lifestyle very much."

Tierney said he has no intention of leaving Minnesota.

To make up for the money he loses because of a higher tax bill, Tierney said he likely will reduce his charitable giving, "whether it’s the Guthrie or the chamber orchestra or the nine million other people who call everyday looking for donations."

Increasing income taxes on the wealthy was Gov. Mark Dayton’s core promise during his 2010 campaign for governor.

"The rich can afford to pay their fair share," the governor repeatedly said. "They should be paying their fair share. And if I’m governor they will be paying their fair share."

To back up his "fair share" argument, Dayton has cited revenue department studies that show top earners pay a lower percentage of their incomes in taxes than do middle and low income Minnesotans.

Critics of the new higher tax say it threatens to drive away people like Tierney who, they say, will move to lower tax states. But studies have concluded tax increases are not a major reason why wealthy people move.

Other wealthy Minnesotans have come to a different conclusion.

"For me, to pay a little more so the person that I was 10 years ago doesn’t have to, I’m happy to do that," said Lauri Barber, a businesswoman and teacher in Minneapolis.

A decade ago Barber was broke, immobilized with arthritis and receiving government help to feed her family. Now she and her husband have a lucrative consulting business. She’s also a full-time elementary school teacher.

At her south Minneapolis school, she’s surrounded by children who have very little.

"Ninety seven percent of these kids get free or reduced lunches," she said. "That’s what my money’s going for, is to give these kids the same opportunity that my children had."

Barber said she and her husband have considered moving elsewhere, but it’s clear to them that high tax states like Minnesota are better places to be.

"In other states where they don’t have the taxes, they don’t have the educational system we have, they don’t have the best medicine," she said. "They don’t have the best businesses."

Article by Mark Zdechlik of MPR News 91.3 FM