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Minnesota taxes: Just average

Date Published: 11/07/2008

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Minnesota 2020's Jeff Van Wychen writes today about a new tax study by Dr. Paul Wilson, Director of the Research Division at the Minnesota Department of Revenue, that shows Minnesota's state and local tax burden is no longer above average among the states.

Minnesota's small government advocates like taxes per capita as the way to compare the relative tax burden among states, because Minnesota's relatively higher average income pushes our ranking higher than when measured on an income-adjusted basis. And higher taxes, they argue, put the state at an economic disadvantage.

Wilson notes several reasons why per capita taxes are higher in high-income states, including higher labor costs and less federal assistance, and he offers a third way of comparing states. His method predicts "average" or "typical" per capita tax burden, given per capita personal income. The predicted number can then be compared to the actual per capita tax to determine if a state's tax burden is higher or lower than average.

The conclusion drawn from this analysis by Dr. Wilson is that Minnesota is no longer a high tax state. After taking into account Minnesota's per capita income, Minnesota's tax burden is typical of the tax burden in other states.

What really matters is not whether Minnesota wins some Grover Norquist low tax contest. The right question to ask is the one Van Wychen poses:

whether Minnesota's drift from a relatively high tax state to an average tax state has contributed positively or negatively to the state's economic performance and quality of life relative to other states.

If we look at Minnesota's rising unemployment rates and lower employment growth since 2002, the answer is clear. The drift toward average tax rates has not been a positive for many individuals or the economy as a whole.

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Taxes

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