For first time in 5 years, more companies reported higher yearly profits, survey shows.
Minnesota employers are more optimistic about the economy and more are reporting increased profitability than at any time since the 2008-09 recession, according to the annual Minnesota Business Barometer Survey sponsored by the Minnesota Chamber of Commerce.
Despite the optimism, the attitude of business owners toward the state’s “business climate” fell to a record low.
“I’m surprised that in a year coming out of this recession that the business-climate favorability numbers would drop,” said Todd Rapp of Himle Rapp & Co., which has conducted the survey for the past 10 years. Rapp will present the survey results to chamber members Thursday morning.
The survey follows the 2013 Minnesota Legislature’s sharp increase in marginal personal income tax rates on the top 2 percent of state income earners.
“They are generally more optimistic about the economy, Rapp said. “This is the first time in five years that more companies reported higher profits vs. lower profits from a year ago. Eighty percent report they are optimistic about Minnesota’s economic future.
“But we typically see 45 percent to 55 percent saying Minnesota has a good business climate and 10 percent saying it has a bad one. This year it was 37 percent and 26 percent. Those numbers have really tightened.”
Gov. Mark Dayton signed into law a fourth-tier income tax rate of 9.85 percent that kicks in at taxable income of $250,000 for households and $150,000 for singles.
The Minnesota Revenue Department has said only 6 percent of small-business owners will be affected by the higher rate, but that and other tax changes have prompted concerns within the business community. Most Minnesota businesses are privately owned and taxed at the owner’s personal income tax rate.
“We asked [the surveyed Minnesota employers] if the fourth-tier rate will reduce their ability to add jobs and 55 percent said ‘yes,’ ” Rapp said.
Despite those concerns, Minnesota boasts one of the nation’s top-performing economies.
In August, state employers added 12,200 positions, an increase to 2.79 million jobs that finally surpassed the prerecession high of February 2008. Unemployment fell to 5.1 percent, well below the national average of 7.3 percent.
What’s unclear is whether the tax hike will enhance Minnesota’s workforce and economic potential or whether it will stifle investment and employment expansion.
Twenty-eight percent of respondents said the cost of health care is a barrier to job creation. And for those whose companies do not provide health insurance benefits, 85 percent said they’re unlikely to start by going through Minnesota’s new exchange.
More than 25 percent of employers say a lack of trained workers is one of their biggest obstacles to job creation.
The survey authors said two-thirds of employers believe Dayton and the Legislature are clueless about running a business. And survey respondents sited state tax reform, reduction in state spending, improved access to affordable health care and better-trained workers as their priorities.
The survey of 350 Minnesota businesses was conducted in July and August.