Bill review: MN HF154 — First-Tier Income Tax Rate Reduction (MN)

[PavelMakarchuk]

Bill Review: First-Tier Income Tax Rate Reduction

Reform ID: mn-hf154 | State: MN
Bill text: https://www.revisor.mn.gov/bills/bill.php?b=House&f=HF154&ssn=0&y=2025
Companion: SF1968 (Sen. Rasmusson)
Description: Reduces Minnesota's first-tier individual income tax rate from 5.35% to 2.8%, a 2.55 percentage point cut affecting all filing statuses. Also rebases statutory bracket thresholds to 2025 inflation-adjusted values (no real-world threshold change). Effective for tax years beginning after December 31, 2024.

Merging this PR will publish the bill to the dashboard.

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What we model

Provision	Parameter	Current	Proposed
First-tier rate (single)	gov.states.mn.tax.income.rates.single.brackets[0].rate	5.35%	2.80%
First-tier rate (joint)	gov.states.mn.tax.income.rates.joint.brackets[0].rate	5.35%	2.80%
First-tier rate (HoH)	gov.states.mn.tax.income.rates.head_of_household.brackets[0].rate	5.35%	2.80%
First-tier rate (separate)	gov.states.mn.tax.income.rates.separate.brackets[0].rate	5.35%	2.80%
First-tier rate (surviving spouse)	gov.states.mn.tax.income.rates.surviving_spouse.brackets[0].rate	5.35%	2.80%

Upper rates (6.80%, 7.85%, 9.85%) are unchanged. Bracket thresholds are unchanged (the bill rebases statutory text to 2025 values already in effect).

Validation

External estimates

Source	Estimate	Period	Link
No fiscal note	—	—	Bill has not advanced past Taxes committee
MN DOR (comparable HF812)	-$3.79B/year	Annual (zero bracket)	Session Daily

No official fiscal note exists for HF154. The best comparable is HF812, which would have zeroed out the first tier entirely. The MN DOR estimated HF812's impact at -$3.79B/year.

Calibration sim: PE vs DOR on HF812-equivalent

We ran the HF812-equivalent reform (zero first bracket) through PE to calibrate the model directly:

Reform	PE Estimate	DOR Estimate	Difference
HF812 (zero bracket)	-$3.00B	-$3.79B	-20.7%
HF154 (2.8% bracket)	-$1.47B	~$1.81B (scaled)	-18.8%

PE is consistently ~21% below DOR across both reforms. The model scales proportionally as expected (HF154/HF812 ratio: 0.488 actual vs 0.477 theoretical).

Back-of-envelope check

HF154 rate cut: 2.55pp / 5.35pp = 47.7% of HF812's full elimination
$3.79B × 0.477 = ~$1.81B/year
Alternative: 2.4M returns × $740 avg tax cut = **$1.78B/year**

PE vs External comparison

Source	Estimate	vs PE	Difference
PE (PolicyEngine)	-$1.47B	—	—
Back-of-envelope (scaled from HF812 DOR)	-$1.81B	-19%	Acceptable
PE HF812-equivalent sim	-$3.00B vs DOR $3.79B	-21%	Consistent

Verdict: PE is consistently ~21% below DOR estimates. This is a systematic data source gap — DOR uses administrative tax return microdata while PE uses Enhanced CPS. The CPS underrepresents high-income filers near the top of the first bracket. The model is internally consistent and scales correctly.

Parameter changes

Parameter	Period	Value	Bill Reference
...rates.single.brackets[0].rate	2025-01-01 onwards	0.028 (2.80%)	Section 1, subd. 2c(b)
...rates.joint.brackets[0].rate	2025-01-01 onwards	0.028 (2.80%)	Section 1, subd. 2c(a)
...rates.head_of_household.brackets[0].rate	2025-01-01 onwards	0.028 (2.80%)	Section 1, subd. 2c(c)
...rates.separate.brackets[0].rate	2025-01-01 onwards	0.028 (2.80%)	Section 1, subd. 2c (cross-ref)
...rates.surviving_spouse.brackets[0].rate	2025-01-01 onwards	0.028 (2.80%)	Section 1, subd. 2c (cross-ref)

Key results

Metric	Value
Revenue impact	-$1,466,283,737
Poverty rate	13.85% → 13.75% (-0.71%)
Winners	75.9%
Losers	0.4%

The 0.4% losers are due to the SALT deduction interaction — reduced state tax liability means a smaller federal itemized deduction, which can slightly increase federal taxes for some itemizers.

Decile impact

Decile	Relative Change	Avg Benefit
1	0.49%	$125
2	0.65%	$332
3	0.69%	$461
4	0.80%	$637
5	0.84%	$786
6	0.85%	$924
7	0.80%	$1,008
8	0.78%	$1,175
9	0.71%	$1,399
10	0.19%	$1,398

The benefit is broadly distributed (highest relative gains in deciles 4-7), with the top decile seeing a small relative change because the rate cut only applies to the first bracket of income.

District impacts

District	Avg Benefit	Winners	Losers	Poverty Change
MN-1	$694	75%	1%	-0.50%
MN-2	$786	78%	1%	-0.23%
MN-3	$895	79%	0%	-1.85%
MN-4	$767	77%	0%	-1.70%
MN-5	$742	78%	0%	-0.38%
MN-6	$774	78%	1%	-1.02%
MN-7	$597	73%	0%	-0.43%
MN-8	$555	72%	0%	0.00%

Reform parameters JSON

```json
{
"gov.states.mn.tax.income.rates.single.brackets[0].rate": {
"2025-01-01.2100-12-31": 0.028
},
"gov.states.mn.tax.income.rates.joint.brackets[0].rate": {
"2025-01-01.2100-12-31": 0.028
},
"gov.states.mn.tax.income.rates.head_of_household.brackets[0].rate": {
"2025-01-01.2100-12-31": 0.028
},
"gov.states.mn.tax.income.rates.separate.brackets[0].rate": {
"2025-01-01.2100-12-31": 0.028
},
"gov.states.mn.tax.income.rates.surviving_spouse.brackets[0].rate": {
"2025-01-01.2100-12-31": 0.028
}
}
```

Modeling notes

• The bill also rebases statutory bracket thresholds from 2019 base amounts to 2025 inflation-adjusted amounts and resets the inflation adjustment base year from 2019 to 2025 (Section 2). These are mechanical changes — the actual dollar thresholds taxpayers experience in 2025 are identical under current law and this bill. PE-US already uses the correct 2025 inflation-adjusted thresholds, so no threshold parameter changes are needed.
• Married filing separately thresholds are defined by statute as one-half of MFJ brackets.
• Calibration: Running the comparable HF812 reform (zero first bracket) through PE yields -$3.00B vs DOR's -$3.79B (-21%). This confirms the gap is systematic (CPS vs admin data) and not specific to HF154.

Versions

• PolicyEngine US: 1.497.0
• Dataset: Enhanced CPS (Minnesota)
• Computed: 2026-02-17