Schafer: Minnesota offers economic lessons for struggling Michigan

  • Article by: LEE SCHAFER , Star Tribune
  • Updated: June 28, 2014 - 2:00 PM

Sometimes it’s helpful to be reminded of how good we have it here in Minnesota — and maybe why.

A think tank called Michigan Future just did us that favor in a report concluding that our tax and spending policies have helped make our state an economic star compared with Michigan and other Great Lakes states.

Minnesota, it noted, greatly outspends Michigan per capita on the kind of stuff that leads to economic growth, things like transportation and education.

Michigan outspends Minnesota on prisons, hardly a fact worth cele­brating.

All the spending in Minnesota takes a lot of tax revenue, of course, which is why state and local taxes per capita in Minnesota were over $5,000 in 2011, compared with $3,655 in Michigan.

The report acknowledges that big difference in tax burden, but just look at the results:

In 2012, Minnesota ranked 11th in the U.S. with per-capita income of $46,227, the highest in the Great Lakes region, while Michigan was 35th at $37,497. Up until 20 years ago, the living standards were pretty similar.

“Minnesota is more than a Great Lakes success story,” the Michigan Future report said. “On most economic measures, it is a national leader.”

Michigan Future, which calls itself nonpartisan and is based in the college town of Ann Arbor, has a bit of an obsession with the state of Minnesota. One reason is that pointing to Minnesota eliminates miserable winter weather in Michigan as an excuse for poor economic performance.

“For 30 years at least, really on a bipartisan basis, we’ve had policy­makers here that really held out Indiana as the state we have to compete with,” said Lou Glazer, the think tank’s president. “Why? The state that’s doing really well is Minnesota.”

And Michigan, clearly, is not.

In 1990, Michigan was ranked 20th among the states in per-capita income; by 2012 it had slipped 15 spots. Even more worrisome is that the growth in personal income that did occur in Michigan was almost entirely due to government payments.

Curiously, the new report doesn’t say a word about one big reason for a slip in economic health — the dramatic contraction of Detroit’s automobile industry.

After reaching the peak U.S. market share of 90.6 in 1965, the Big Three of General Motors, Ford and Chrysler pretty much only saw market share declines after that, bottoming out at 43.7 percent in 2009.

That mostly explains why from 1990 to 2011, the state of Michigan lost 318,000 manufacturing jobs, a decline of 37 percent. Minnesota lost, over the same period of time, about 11 percent of its manufacturing jobs.

Glazer acknowledged that seeing Michigan’s major industry driven into the ditch sure didn’t help. In fact, it proved that the state needed to move to a knowledge-based economy from a primarily manufacturing one. That has been obvious for decades.

Had Michigan been investing in things like education and transportation at the kind of levels Minnesota has, Glazer said, his state would be far better off today.

“Michigan has been systematically disinvesting in that stuff for decades,” he said.

The Michigan report doesn’t shy away from showing what Minnesota’s spending costs the taxpayer. And to compare Minnesota and Michigan’s tax rates, including Minnesota’s 9.85 percent top marginal income tax rate that is more than double Michigan’s, is sobering.

To suggest that a nearly 10 percent top tax rate is somehow part of a clever strategy to grow the Minnesota economy is at least a debatable point. There’s been credible third-party research that has shown that high relative marginal tax rates can get people to pack up and leave.

Not so long ago, Michigan had some taxes that were so onerous that it’s hard to imagine any mainstream Minnesota politician supporting something similar here. But Michigan got rid of the worst of them, including business taxes on factors besides income to the owners.

It’s why Tricia Kinley, lead lobbyist for the Michigan Chamber of Commerce on tax and regulatory policy, said the Michigan Future report seems to be advocating a version of Michigan past and a return to policies that have been proven to be failures.

For Glazer, debating tax policy is far less important than what government does with the money. Is the public’s money invested in things that produce economic vitality? Or is it just spent?

Perhaps the most important thing to him is seeing more Michigan residents get a college degree. Detroit, he said, was a quintessential 20th-century success story, with great wages and secure retirements easily within reach of folks without a college degree. That’s no longer the case.

A report earlier this year from the Lumina Foundation ranked the Twin Cities as the fourth-highest metro area by percentage of people with an associate’s or bachelor’s degree. Detroit’s was 20th out of 25 on its list.

In 2012, 51.9 percent of young adults under 35 in Minnesota had a degree, well above the national rate of 40.9 percent. It was only 38.5 percent for the same age group in Michigan.

Glazer said it would be hard to overstate the economic impact of that big disparity in the educational attainment of the two states’ respective workforces, summing up his group’s thinking this way:

A healthy economy exists in states where government has spent money to make it easier to get a college degree and more money to help make the state an attractive place where highly educated people will choose to live.

“You have done it,” Glazer said. “We haven’t.”

lee.schafer@startribune.com 612-673-4302

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