Minnesota vs. Michigan: A Case For Larger Government?

A recent report published by Michigan Future Inc. attempts to defy economics 101, arguing that high taxes and larger government have caused economic success in Minnesota. The report used a meager sampling of two states, coupled with poor analysis to draw a number of unfounded conclusions about the relationship between big government and economic performance. Policymakers and journalists should be wary of studies like this one, which skew the data to justify more taxes and spending.

The report compares the economic conditions in the states of Michigan and Minnesota, and it arrives at the conclusion that Michigan would be best suited to follow in the steps of its neighbor by increasing taxes and the size of government. With such limited and narrow data, the legitimacy of the report relies solely on the comparability between these two individual states.

Every year ALEC publishes a new edition of the award winning study, Rich States, Poor States, and every year a strong relationship can be observed across the 50 states between the degree of economic freedom which exists within a state and the level of economic performance in the respective state. One of the strengths of our report is that it examines data from all 50 states to build a sound model that limits the impact of any potential anomalies and avoids argument by pure anecdote.

If Minnesota is the example state others should emulate, then there are some inconvenient truths for Michigan Future Inc. and other supporters of big government to navigate. First Minnesota’s job growth and GDP growth have been below average over the past decade. Over the same time period, Minnesota has, on net, lost more than 60,000 of its residents to the other 49 states. Additionally, and perhaps most appallingly, Minnesota has lost, once again on net, more than $4.2 billion in wealth from residents who have left for one of the other 49 states since 1992. It is difficult to imagine why any state would want to emulate this record. Meanwhile, Minnesota has lost billions in wealth during that period to pro-growth, limited government states like Florida, Arizona and Texas.

Additionally, Michigan Capital Confidential does an excellent job responding to the Michigan Future Inc. report, citing a lack of proven causation behind any of the comparable statistics used in the report. They also point out the flaws in the regional comparison by documenting the damaging impact high tax rates and government intervention have had in the neighboring state of Illinois. Illinois’ high taxes and large state government seem to be what Michigan Future Inc. desires for Michigan. The Land of Lincoln, which Rich States, Poor States ranks a dismal 48 in economic outlook, has the 39th worst gross domestic product growth, the 48th worst net migration, and the 47th worst job growth in the United States. If purely anecdotal evidence is valid, as the Michigan Future Inc. report implies, then Illinois alone disproves their case for higher taxes and larger government.

Two of us being former Michigan residents ourselves, we know the state has suffered from the impact of a sluggish economy for the majority of the past decade due to previous policies and other global economic factors. Michigan’s recent movement towards free market policies, such as passage of freedom-to-work legislation and significant tax relief, certainly represents a huge step in the right direction for the state. It does, however, take time and proven stability to regain the trust of the many businesses and employees who fled the state in years past. Michigan’s economy has picked up and rejoined the rest of the nation from its previous decoupled state. It is on the right track, and once recent policy reforms have been given time to fully take effect, we expect the state’s performance to continue to improve.

One of the foremost lessons from Rich States, Poor States is that while state legislators cannot control every factor that influences the economic success of their state, they can contribute to this end by promoting limited government and free markets.


In Depth: Cronyism

Cronyism in tax policy stifles innovation, hinders competition and introduces a deep temptation for corruption. The 2014 ALEC Center for State Fiscal Reform study, The Unseen Costs of Tax Cronyism: Favoritism and Foregone Growth, found that in the most recent year in which states published their respective tax expenditure…

+ Cronyism In Depth