As spring approaches and policymakers at the state Legislature buckle down to the business of actually making a budget, Minnesotans will soon hear familiar if contradictory claims about who is or isn’t paying their “fair share” in taxes to support the common good.
They’ll also hear disputes about which public programs and services most desperately need additional funding.
Seldom, I’m afraid, will they hear about institutions or constituencies that have all the taxpayer dollars they feel it decent and proper to request.
In the interest of arming confused spectators of this free-for-all with a few benchmark facts, let’s examine the basics of how Minnesota’s taxing and spending habits stack up nationally, courtesy of an analysis by the Minnesota Center for Fiscal Excellence. The business-backed think tank has published its “How Does Minnesota Compare” research reports for some 50 years.
We begin with the fun part, as the politicians typically do — with spending the public’s money. If you thought Minnesota was the spendiest state in America, you were wrong. But it’s no skinflint.
In 2016 (the most recent year available) Minnesota ranked 12th in total spending per household, the center says, among the 50 states and the District of Columbia. It spent 10 percent more than the national average.
Where does Minnesota state government most liberally spend taxpayer dollars, by comparison with other states? It’s not even close and no big surprise, according to the center’s data.
“Public welfare” spending per low-income person in Minnesota was well more than twice as high as the national average in 2016 — the second-highest level of spending in the country on various programs to aid the less affluent.
Another spending area where it’s in character for Minnesota to splurge by comparison (though the absolute spending level is modest) is on natural resources and parks. Our state spent 62 percent more than average on conservation and outdoor recreation, per household.
By contrast, if you’ve run into any potholes lately, or noticed any other imperfections in Minnesota’s roads, you won’t be shocked to learn that the center reports our state spent 15 percent less than average per 1,000 miles of highway. That helps explain Gov. Tim Walz’s somewhat jarring call for a 20-cent-per-gallon hike in the gas tax.
Education in Minnesota consumes almost half of all state spending; it was 15 percent above the national average, per student, for both E-12 schools and higher education in 2016, according to the center’s analysis.
Clearly, as the center notes, the toughest policy challenge Minnesota’s spending pattern points to is the state’s heavy and fast-growing spending on social services, hardly likely to spontaneously slow in the face of a rapidly aging and ever more diverse population.
How can that outlier status on welfare spending help but continue to “crowd out” funding for other priorities — running the risk of making Minnesota not just a high-tax state but a high-tax state whose roads are falling apart?
Now, about those high taxes. Not all the taxes in Minnesota are above average, the center reports; some are comparatively modest. But don’t count on politicians to help you keep straight which is which.
Minnesota’s individual income tax ranked sixth in 2016 as a percentage of total state income, according to the center. The corporate income tax ranked eighth. And combined excise taxes (gas, alcohol, tobacco, etc.) ranked 13th. All three stood between 24 and 26 percent above the national average.
The relative bargains among Minnesota taxes are two of the bigger total money raisers — sales taxes and property taxes. Minnesota sales taxes ranked 31st among the states as a portion of total income, 10 percent below average. Property taxes ranked 22nd, 6 percent below average.
Like other advocates of tax policy reform, the center sees Minnesota’s comparatively low and narrow sales taxes as an opportunity for redesigning the state’s tax system to be more stable, efficient and competitive. One worry is the increasing enthusiasm for local-government sales tax levies, which could use up much of the state’s maneuvering room.
The state’s two biggest money raisers — the individual income tax and the property tax — have one thing in common. They affect different people very differently. Minnesota’s income tax, the center confirms, is one of the nation’s most “progressive,” taking more proportionately from the rich than the poor. In part that’s a legacy of the “tax the rich” policies of former Gov. Mark Dayton.
Meanwhile, the state’s complex system of local government aids and taxpayer refunds somewhat reduces the inherent tendency of the property tax (like the sales tax) to be “regressive,” hitting the less well off the hardest.
Several details worth noting, meanwhile, seem not particularly well understood. First, using 2014 data (the latest analyzed), the center analysis confirms that Minnesota’s comparatively high income taxes have long kicked in for people who, while not poor, enjoy less than kingly lifestyles. Minnesota income taxes for single filers ranked eighth among the states, 19 percent or more above average, for all incomes above $75,000. Married couple taxes were above average for all incomes above $100,000.
As for property levies, the center calculates Minnesota burdens for homeowners in 2017 to have been 10 percent below average in urban areas and 7 percent below average in rural areas. Commercial property taxes, by contrast, ran 39 percent above average in urban regions and a whopping 89 percent above average in rural zones.
It should be noted that the state’s own analysis, as in the Revenue Department’s 2019 “Tax Incidence Study,” has long explained that business taxes, which are in significant part passed on to consumers and workers, are in truth another decidedly regressive form of taxation. As a whole, state and local taxes in Minnesota are slightly regressive, that study shows.
Most other state tax systems, however, are more regressive than Minnesota’s. The state’s liberals have worked hard and unapologetically over many years to ensure that the better off (and businesses) pay, let’s say, a considerable share of taxes in this state. The center’s comparative analysis suggests they’ve been, well, comparatively successful.
It’s one of the facts policymakers might want to keep in mind as they hammer out a new budget.
D.J. Tice is at Doug.Tice@startribune.com.