New income and wealth taxes for Minneapolis are terrible ideas

Over the last couple of days, I’ve written about how soaring city spending coming on top of plummeting commercial property values and consequent declines in commercial property tax revenues are going to lead to steep hikes in Minneapolis’ residential property taxes.

Steve Brandt, president of the Minneapolis Board of Estimate and Taxation, highlights one aspect of the issue in the Star Tribune:

Here’s the problem. Even a 6.1% tax hike for 2026 could mean double-digit increases in property-tax bills for homeowners. That’s because of something called burden shift. The Minneapolis property-tax base sagged in the 2024 assessment, the valuation that will be used for next year’s tax calculations. That’s due mostly to high interest rates undercutting demand to buy apartments and houses, and to weakening downtown commercial values.

The problem for homeowners is that the residential property base dipped less (-1.2%) than that for apartments (-9.5%) and commercial property (-8.7%). So our homes will make up proportionately more of the property-tax base. That means your city property tax could well rise even if your home’s value dipped. And in places like the North Side’s 4th and 5th wards, which have the lowest median home values, the bite will be worse because the typical home there gained value, unlike other wards.

It is hard to see a solution to this problem, as I noted yesterday. It is certainly impossible to see a painless one. It is also hard to imagine worse ones than those proposed by Brandt.

The City Council should, he says:

…take a serious look at diversifying how it finances city services, including seeking the power to impose a municipal income or wealth tax.

That may be a startling idea, but with several years of nasty property tax increases for residential property projected ahead, it’s vital to explore.

A modest tax on higher incomes or accumulated wealth could help to offset the regressive impacts of ever-increasing property taxation as a mainstay of city finances. Regressivity means that lower-income people pay a higher share of their household income than wealthy people.

It is, in fact, unlikely to do this.

Minnesota already has some of the highest rates of income tax in the United States. Research shows that these taxes are a factor in driving people out of the state. How much greater will this effect be when people don’t have to move out of the state to avoid it but simply out of the city?

The current property tax is already a form of wealth tax, levied, as it is, on the assessed value of an asset. This proposal is, then, for another wealth tax on top of that, presumably on all assets, such as stocks and bonds. The problems with this are well known, which explains why most countries which have dabbled with wealth taxes have ended up abandoning them: They typically cost more to administer than they bring in. This is hardly surprising given the fluctuations in stock and bond prices, and the consequent fluctuations in an individual’s wealth. Just take a look at how your 401k has done over the past month.

Note, also, that this additional wealth tax isn’t being presented as an alternative to the proposed additional income tax, but alongside it. This will only increase the desire of wealthier Minneapolitans to skedaddle. Brandt will soon find that a tax rate high enough to cause your tax base to split yields nothing.

Minneapolis is in grave danger of entering the Doom Loop that cities across America entered in the 1960s and 1970s. As people left, tax revenues fell. Taxes were hiked and services cut in response, with the result that more people were driven to leave and the problems intensified. From 1950 to 1990, the population of Minneapolis fell by 153,335, or 29%. One sure way to set that process in motion again is to repeat the mistakes that set it in motion last time. Instead, we must look at the root causes of the decline of Minneapolis.