In his Aug. 15 commentary “Minnesota, where the economy is not even average,” Center of the American Experiment President John Hinderaker claims “blue-state policies” have hurt Minnesota’s economy over the last 15 years.
First, it’s dangerous to make simplistic correlations between a state’s economic performance and fiscal policies, given the large number of factors that drive a state’s economy; however, to the extent that conservative interest groups like the Center of the American Experiment (CAE) insist on blaming fiscal policy for mediocre economic outcomes, they must accept that their policies dominated the majority of the last 15 years in Minnesota.
The 21st century began with the implementation of a significant cut to the state’s progressive income tax, and the state quickly adopted a conservative “no new taxes” agenda under Gov. Tim Pawlenty.
Public expenditure trends provide supporting evidence of the predominance of red-state policies in Minnesota during the first 13 years of the 21st century. From 2000 to 2013, Minnesota state and local government spending per capita saw the third-largest decline among the 50 states. Meanwhile, Minnesota state and local spending per $1,000 of personal income saw the fifth-largest decline. These points belie the claim that blue-state policies dominated Minnesota’s fiscal agenda in the 21st century.
Second, Minnesota’s wage and GDP growth were modestly below the national average during the first 13 years of the 21st century. Since 2013, Minnesota wage growth has been modestly above the national average. Minnesota wage growth underperformed the adjacent state average from 2001 to 2013, but slightly outperformed the adjacent state average from 2013 to 2015.
A similar trend emerges when examining GDP growth. From 2000 to 2013, average annual Minnesota GDP growth was slightly below the national average, and also lagged behind the adjacent state average; however, since 2013 Minnesota’s GDP growth has been modestly greater than the national average and the adjacent state average.
Third, the trend of below-average employment growth compared with the rest of the nation persists during periods of both conservative and progressive policies. Minnesota’s relatively low rate of job growth is in part due to the state’s low unemployment rate and nation-leading labor participation rate, as well as other factors common to northern states that cannot plausibly be attributed to fiscal policy.
Fourth, the CAE’s claim of Minnesota’s weakened future prosperity is overstated. Using data from the U.S. Bureau of Economic Analysis and Minnesota Management and Budget, we project that Minnesota personal income will increase by $6,500 per capita from 2016 to 2019 — $300 per capita greater than the projected national average. Minnesota’s personal income growth would be further above the national average but for the fact that income growth in Minnesota is limited by the fact that a much larger share of working-age adults are already employed.
Finally, the CAE once again uses the largely discredited claim of massive income migration based on IRS Statistics of Income, which conservative economic Lyman Stone notes is “an egregiously wrong use of the data.”
The CAE also conveniently ignores new Minnesota Department of Revenue data that demonstrate a significant increase in the number of very-high-income taxpayers and the income taxes paid by them in the year following enactment of a new top-tier income tax rate.
There’s certainly more work to do to ensure that Minnesota’s economy works for everyone, not just the wealthy, but the state has gotten off the roller coaster of budget deficits and accounting gimmicks.
Given all of this information, and the numerous rankings that put Minnesota in the top for best states for business, quality of life, child well-being and so on, it’s simply unbelievable to blame “blue-state policies” for red-state outcomes.
Stephanie Fenner is executive director of the North Star Policy Institute.