What are the forces moving the Minnesota economy? Adam Belz tries to identify the trends and show the connections between Minnesota and the larger U.S. and global economies. You can connect with him on Twitter: @adambelz

Minnesota tax climate gets terrible marks, but economy keeps growing

Posted by: Adam Belz under Business trends, Economics Updated: October 9, 2013 - 2:08 PM

The tax climate of Minnesota ranked 47th this year out of all 50 states, according to the right-leaning Tax Foundation, thanks to increased income taxes on the wealthiest Minnesotans.

Minnesota fell two spots and is now ranked better than only California, New Jersey and New York in the State Business Tax Climate Index. Wisconsin is ranked 43rd.

“The states that lost ground this year usually did so because they changed policy in a way that makes the tax code more complex, burdensome, or economically harmful,” said Tax Foundation economist Scott Drenkard. “By contrast, the states that improved did so because they are moving closer to a tax code that collects revenue without unnecessarily distorting business decisions. Their tax codes became more neutral.”

Despite its low ranking, Minnesota’s economy was the fifth-fastest growing in the nation in 2012 and the unemployment rate in August was 5.1 percent, compared with a 7.3 percent U.S. jobless rate.

The state has chosen over the years other priorities than a business-friendly tax climate, and up to now the strategy has paid off. Lou Glazer, who runs a think tank in Michigan (ranked 14th in the nation for tax climate), has written a lot on the comparisons between Minnesota, a relatively high-tax state with a strong economy, and Michigan, a relatively low-tax state whose economy is struggling.

The comparisons favor Minnesota.

The top ten states in the Tax Foundation's 2014 rankings are Wyoming (#1), South Dakota (#2), Nevada (#3), Alaska (#4), Florida (#5), Washington (#6), Montana (#7), New Hampshire (#8), Utah (#9), and Indiana (#10).

The 10 lowest ranked states are Maryland (#41), Connecticut (#42), Wisconsin (#43), North Carolina (#44), Vermont (#45), Rhode Island (#46), Minnesota (#47), California (#48), New Jersey (#49), and New York (#50).

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