Minneapolis City Council votes to study how to tax the rich

The Minneapolis City Council is looking into new ways to tax its wealthiest residents and businesses.

The council voted 10-0 Thursday to research new sources of revenue, including taxing the city’s upper class, in ways that likely would require changes to state or federal laws.

Seeking new income from the wealthiest is an idea gaining traction in a number of cities nationwide. Council members sought to frame the idea as a clapback to President Donald Trump’s tax-and-spending bill recently approved by Congress.

The signature legislation so far in his current term, Trump’s bill has angered many on the left in that it benefits the wealthiest Americans most through a series of tax benefits while hurting the poor through cuts in food stamps and Medicaid. The bill also provides a huge increase in funding for immigration enforcement.

Council Member Robin Wonsley said Trump’s “big, horrible bill” was a “handout to some of the most affluent households” in America, at the expense of public assistance programs.

Council Vice President Aisha Chughtai was confident the move would play well in Minneapolis, an overwhelmingly Democratic city.

“I think that is in line with Minneapolis values,” Chughtai said. “Taxing the rich I don’t think is a controversial opinion in Minneapolis.”

Council Member Aurin Chowdhury called the measure “very forward-thinking” after Congress approved Trump’s “big, disastrous bill.”

“We need wealth distribution in our country and our federal government is simply not going to provide for that,” she said. “We know that poverty is an issue in Minneapolis and it’s time that our City Council speak with deep, deep clarity.”

The measure doesn’t define “wealthy” — it simply directs the city to study new revenue sources. Council members themselves might qualify: They’re paid nearly $110,000 per year.

Wonsley noted the Legislature has also explored the idea: One lawmaker proposed a new income tax on the wealthiest Minnesotans to offset federal cuts.

Council President Elliott Payne said finding new sources of revenue is crucial as the council looks for ways to reduce the burden on residents from property taxes, the largest revenue source for the city’s general fund. More of the city’s tax burden has gradually shifted to property owners in recent years, accelerating during the pandemic.

Minneapolis Budget Director Jayne Discenza recently told council members that city expenses are increasing faster than revenues, and due to increased costs, the property tax levy would have to go up 11.2% to fund current service levels.

The mayor and council have made it clear that’s too big of a tax hike. Next month, Mayor Jacob Frey will release his budget proposal, and the council will make changes to it before final approval in December.

Last fall, Payne and Frey agreed to explore new types of revenue sources at the request of Steve Brandt, president of the Board of Estimate and Taxation (BET). Brandt said he’d support a property tax levy increase this year if city leaders seriously considered more diversified revenue sources.

Brandt has urged the city to consider an income tax for higher earners, a payroll tax, or an increase in the sales tax. Most of those changes would require approval from state lawmakers — and couldn’t happen any time soon.

Council Member Katie Cashman said in light of Trump’s “disastrous bill,” it’s important for cities and states to “step up.”

Council Member Jason Chavez agreed, saying, “I believe that we do need to tax the rich. We do need to tax the wealthiest people in the city of Minneapolis if we’re ever going to help address poverty in our city.”

The measure was approved by a 10-0 vote, with three members absent: Andrea Jenkins, Jeremiah Ellison and Emily Koski.

Minneapolis is not alone in its interest in a local income tax. More effort is being put into the concept elsewhere in the country, for many similar reasons, said Mark Haveman, executive director of the Minnesota Center for Fiscal Excellence.

“Property taxes are absolutely despised and that’s basically the one thing local governments can hang their hat on and claim as their own,” Haveman said.

Haveman said one potential pitfall for local income taxes is what he called “border effects.” Many people argue that residents of high-tax states will defect to cheaper ones. Haveman said that impact is multiplied in the case of a city.

“It’s one thing to move to a different country,” Haveman said. “It’s another thing to move to another state. It’s completely another thing to decide to move 2 miles down the road to another city.”

Haveman said Minnesota’s tax system is one of the nation’s most progressive, maybe the most progressive, and likely became only more so after the 2023 legislative session, when Democrats, with full control of state government, approved a host of changes, such as an expanded child tax credit. He said a state property tax refund program also makes those taxes less regressive.

Even before the pandemic hammered city budgets, local governments faced significant revenue constraints, according to a 2023 paper published by the UC Law Journal, written by law professors from Arizona State University and UC Davis.

That paper, which heralds “the surprisingly strong case for local income taxes” in the era where remote work has become more common, says some form of income taxes are levied by local governments in as many as a third of U.S. states, including in big cities like Philadelphia. It points to Chicago as another city to recently consider one.

The authors said a local income tax can help diversify city revenue, protect it from changes to the economy and yield other benefits.

“I think that the idea that there will be this mass flight from any place that has a local income tax, I mean there are localities that have local income taxes and it doesn’t happen,” said Darien Shanske, the UC Davis professor.

Shanske said many local income taxes are small, and that a lot of wealthy Minnesotans are going to be getting comparably larger tax breaks through the federal budget bill.

“They wouldn’t even notice,” he said. “Some people might.”

The authors wrote that local governments should consider the possibility of driving wealthy people from the city when designing the income tax. One way to mitigate such “exit concerns” is to design regional income taxes, like imposing one in California’s Bay Area, rather than just San Francisco.

Shanske said the ease of moving between cities and suburbs in the Twin Cities metro suggests Minneapolis might need a “tighter limit” on any future income tax.

“It doesn’t mean it should be zero,” he added.