This post originally appeared at https://www.badgerinstitute.org/minnesotans-cite-taxes-rules-as-they-flee-to-wisconsin/

‘It’s tough enough to run a small business in Minnesota,’ but rates and regulations grew harsher under Walz, starting with COVID

Outdated Minnesota liquor laws brought Jon Kreidler’s Tattersall Distilling to River Falls, Wis. Gov. Tim Walz’s new taxes over the past year have made Kreidler look like a genius.

Sweeping tax increases, passed last year after Democrats got control of both houses of the Legislature, while the state sat on a COVID-fueled $17.5 billion surplus, has Minnesotans, particularly along the border counties with Wisconsin, apoplectic.

As the Badger Institute pointed out earlier this month, Minnesota has been bleeding population and revenue for several years with its high tax and regulatory structure.

A closer and more recent look shows details of the bleeding. As of 2022 U.S. Census data, the No. 1 destination for Minnesotans was Wisconsin, with 19,307 relocating that year. In that same year, 18,702 Wisconsinites moved to Minnesota, many of them to the Twin Cities, according to the Census data.

IRS data show a similar story, with a twist. Between 2021 and 2022, the federal agency found that 8,211 households (or “tax units” in IRS parlance) moved from Minnesota to Wisconsin, while 7,559 moved from Wisconsin to Minnesota.

Worse yet, the households fleeing east to Wisconsin are much higher income than those going the other way. Minnesota households moving to Wisconsin earned 28% more than Wisconsinites headed to Minnesota.  The average household moving from Minnesota to Wisconsin reported an adjusted gross income of $82,001, while Wisconsin households moving to Minnesota averaged $64,061.

The full impact on the Minnesota and Wisconsin border is just beginning to be felt, perhaps because the cumulative effect of so many different Minnesota tax increases has not been fully realized. The businesspeople who have been affected say the tax increases are only the latest in a series of calculated decisions by Minnesota politicians that began with federal COVID funding disbursement and have hit the middle class and small businesses the hardest.

When Kreidler, the co-founder of Tattersall, decided to close one of its cocktail rooms in Minneapolis at the end of 2024, the company decided to expand its distilling, food and drink operation in River Falls, about 10 miles from the Minnesota-Wisconsin border.

By the time his company made its move, the liquor laws had been changed, but Kreidler’s bet on River Falls had not. The latest wave of taxes is an indignity and will be a burden on the remaining Tattersall operation in Minneapolis, but it’s seen as part of a bigger, more burdensome local and state regulatory structure, Kreidler said.

The ever-increasing minimum wage, mandating healthcare, “sick and safe” time, no tax credit for tips, and increased regulations on running a business are just some of the impediments, Kreidler said.

“It’s tough enough to run a small business in Minnesota, but the added (tax) pressures are becoming too much for a lot of people, and we are going to continue to see more businesses leaving,” Kreidler said. “Political support of labor organizations unionizing small shops is becoming the final straw. It’s getting pretty ugly.”

The ugly began with Walz’ “massive overreach” during the COVID health emergency, locking down businesses, schools and churches for far longer than did neighboring states and enforcing mask mandates that were later proved to be largely useless. 

Business leaders and taxpayers fumed when the Walz administration earmarked much of its COVID surplus to social welfare programs and special interests. But it wasn’t until the Democrats added a majority in the Minnesota House to their Senate majority that Walz revealed the extent of his progressive vision for the state, Pete Stauber, the Republican U.S. representative for the state’s eighth congressional district, said.

“What he’s done has been devastating for our state’s businesses,” Stauber told the Badger Institute. “He’s betrayed the people of Minnesota. People are seeing him the way he really is for the first time.”

Minnesota currently has a 9.8% corporate income tax, the highest in the country. Wisconsin’s is 7.9%. Walz pushed for and signed a hike in the sales tax for the state’s most populous area, the seven counties that include Minneapolis and St. Paul, to 8.125% from 7.125%. Wisconsin’s sales tax is 5%.

In addition, the Legislature rammed through one of the largest child tax credits and one of the most generous paid sick and family leave laws in the country as well as a taxpayer-underwritten plan to offer as much as 20 weeks of paid medical leave. A $2.6 billion infrastructure spending package was seen as a sop to the state’s construction unions, Stauber said.

Stauber’s district covers northeastern Minnesota and runs along the border of four of Wisconsin’s westernmost counties — Douglas, Burnett, Polk and St. Croix. The constituency is working and middle class, very unlike that of the Twin Cities to the southwest.

The businesspeople who have called Stauber’s office to complain say they believe the new taxes are designed to support corporate interests that don’t need the support [MN1] or low-income people who provide no support for the tax base.

“I have people telling me they are getting out or they would get out if they could,” Stauber said. “These tax increases hit the poor and the working class the hardest.”

The Badger Institute emailed Gov. Walz’s press office for comment but did not get a reply before this story was posted.

There have been a few high-profile protests raised in the face of the new tax regime. Last year, when the tax increases moved forward, Howard Root started a statewide debate after selling off his medical tech company, Vascular Solutions, for $1 billion and sending a letter to the Minnesota Star Tribune telling everyone he was leaving “the state I love that had provided me so much.”

“Those reasons start, but don’t end, with taxes,” Root wrote. “Even in the face of a massive $17 billion surplus, the Minnesota Legislature just raised my sales tax and gas tax, created a new deliveries tax and even flirted with raising my income tax.

“What used to be Minnesota Nice has become Minnesota Nuts, and I’m out.”

Root’s income tax would already have been high. Minnesota has the highest top marginal individual income tax rate in the Midwest and the sixth highest in the country, according to the Tax Foundation. The highest Minnesota rate is 9.85%, while Wisconsin’s tops out at 7.65%.  Minnesota’s top rate kicks in about $100,000 earlier on the income scale, too.

Minnesota’s outflow isn’t just a matter of residents moving. With $17.5 billion in investments through 2023, Minnesota businesses did 355 projects and created 31,255 jobs — out of state, according to the Minnesota Chamber of Commerce’s most recent report. During the same period, out-of-state companies invested just $12.7 billion while doing 210 projects and creating 20,914 jobs in Minnesota.

“Despite strong overall project activity, Minnesota still trails other states in the region over a five-year period and is failing to attract as much investment as it is sending out,” the report says.

Judging from the talk, the punishing new taxes in Minnesota might have an effect, Melissa Meschke, executive director of the St. Croix Economic Development Corp. in Hudson, told the Badger Institute. The Badger Institute contacted the directors of the economic development corporations in the four Wisconsin counties in the closest proximity to the Twin Cities — Pierce, St. Croix, Polk and Burnett. None reported a major business relocation or expansion from Minnesota in recent months. “The last business of size that moved to Pierce County moved seven years ago, and I am not sure it was because of taxes,” Joe Folsom, former director in Pierce County, said.

“I can tell you I am taking multiple calls a month on this exact topic (taxes),” Meschke said. “I think many companies are looking to jump the border and are looking to St. Croix County, so they don’t lose all of their workforce. Taxation is typically a main point of conversation.”

Wisconsin’s Manufacturing and Agricultural Credit, which eliminates most of the income tax on manufacturing and agricultural production, has also been a big part of that conversation, she said. 

Meschke has been at the helm of St. Croix EDC for nine months but has not yet claimed a major relocation success  — yet.

“It’s a little early to say what the tax impact will be, but people are talking about it,” Meschke said. “We might not know anything for as much as a couple of years.”

The chatter at the Outpost Bar and Grill is emphatic that the rush across the border to Wisconsin has already begun. Bay City, a village of about 425 people on the Wisconsin side of the Mississippi River, 45 miles southeast of St. Paul, got a shot in the arm when Lisa Zarza took over the Outpost.

Zarza is probably Minnesota’s most notorious exile — sort of; she still has a few months left on her home lease in Rosemount, just outside of the Twin Cities. Her story has been told by the New York Post and a few weeks ago by Fox News. 

Every workday, on her Wisconsin-made Harley Davidson motorcycle, Zarza says, she flips off her home state as she crosses the border on U.S. Highway 63 at Red Wing, Minnesota.

“Every day in my bar I hear people talking about people who have given up and moved to Wisconsin,” Zarza told the Badger Institute. “I don’t think the data is current. People are coming to Wisconsin. And out of the maybe 200 people who come to my bar, not one of them supports Tim Walz.”

Like Zarza, the Minnesotans she serves in her bar are outraged by the taxes. And like her, those locals see the tax increases as political arrogance that grew out of COVID in 2020. At the time, Zarza, the owner of two successful Minnesota bars, bristled when Wisconsin bars and restaurants on the border opened months sooner than those in Minnesota.

When she defied the lockdown order and reopened, the State of Minnesota sued. She says she lost hundreds of thousands of dollars and, eventually, her businesses. “They wanted to make an example of me,” she said.

Zarza takes little solace in the possibility that Walz might become the next vice president of the United States. The political machinery is in place to foist an even more progressive agenda with an even heavier tax bill on Minnesota’s middle class. How much more people are willing to take, Zarza isn’t sure.

“I tell people my crossing the border every day to come to work in Wisconsin is a story of success,” Zarza said. “You have to stand up for what you believe in.”

Mark Lisheron is the Managing Editor of the Badger Institute.

Any use or reproduction of Badger Institute articles or photographs requires prior written permission. To request permission to post articles on a website or print copies for distribution, contact Badger Institute President Mike Nichols at mike@badgerinstitute.org or 262-389-8239.

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