State Budgets

Minnesota State of the State

Governor Dayton proposes more spending and higher taxes during his final State of the State address.

Governor Mark Dayton delivered his final State of the State address in a largely optimistic tone declaring, “Our number one priority should be tax fairness for individual Minnesotans and their families.” Oddly enough, after the Minnesota Budget Office projected a modest surplus for the current two-year budget cycle, rather than lowering tax rates or returning money to taxpayers, Dayton has been exploring ways to spend it and raise taxes. His proposals have been complicated, as he willingly admits. Unfortunately, the governor’s idea of “tax fairness” seems to mean taking more money from the pockets of hardworking Minnesotans to fill the coffers of government.

Dayton spent much of his address discussing further spending requests, ranging from education, health care, and infrastructure. State spending grew by nearly 38.5 percent from 2007-2017, more than six times as much as the 6.28 percent population rate increase. Population and inflation growth over the same period is 20.5 percent, so all things considered, state spending has still grown at nearly double the pace. Dayton’s statement that “Individual Minnesotans did not receive much of any benefit from the federal tax bill” is ironic, considering he believes taking even more money from citizens is fair. The governor’s statement is also highly inaccurate. Over 10 years, the federal tax reform package lowers individual income tax revenue by $1.1 trillion, dwarfing the corporate income tax cuts. For a married couple both earning $50,000 per year with two children, tax reform results in more than $2,800 in annual savings.

At 9.85 percent, the state has the highest top marginal individual income tax rate in the region and the 6th highest in the country according to Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index. In terms of overall tax burden, Minnesota is also among the worst. While Governor Dayton claims it is “fortunate” that Minnesota has never been a low-tax state during his career, this means the state has lost over $7.5 billion in adjusted gross income between 1992-2016 due to out-migration. Dayton applauded the 2013 effort of raising taxes on the wealthiest 2 percent of taxpayers, but left out the countless stories of job creators fleeing because of the high-tax environment. Our research in Rich States, Poor States illustrates Minnesota has negative net domestic migration, with over 65,000 citizens leaving in the past ten years. In the short-term it may be politically popular to raise taxes on high earners, but when those individuals, businesses, and dollars move elsewhere, Minnesota will be stuck with substantial bills and no way to pay for them.

Minnesota is one of the states that accepted Medicaid expansion money from the federal government, and Governor Dayton now acknowledges the “failures of the ACA are having devastating effects on the lives of many Minnesotans.” Five years ago the state enjoyed some of the lowest individual health market premiums in the country, but  now ranks in the middle of the pack after only a few years of skyrocketing premiums. Dayton suggested increasing competition and choice in the marketplace as a possible remedy, an undoubtedly prudent move.

With an economic outlook ranking of 44th out of 50 in Rich States, Poor States, perhaps it is time for Minnesota to buck the status quo by cutting government spending and allowing taxpayers to keep more of their hard-earned money.

In Depth: State Budgets

Smart budgeting is vital to a state’s financial health. The ALEC State Budget Reform Toolkit offers more than 20 policy ideas for addressing today’s shortfalls in a forthright manner, without resorting to budget gimmicks or damaging tax increases. One way to stabilize budgets over time is to embrace…

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