Report Card on Federalism: Good News for the Laboratory of States, Bad News for Minnesota

While the national conversation is focused on the presidential race and the nation’s poor economic health, the states continue to serve as a robust laboratory for ideas and policies. Despite the stunning growth of the federal government and the consequent take-over of many aspects of state government, business, health care and our private, daily lives, the states continue to prove that leadership and innovation can deliver game-changing reforms.

There is plenty of encouraging news from around the nation with bragging rights going to places like South Dakota, Texas, Kansas, Florida—even Pennsylvania and Michigan where governors and legislatures are working together to lower the cost of doing business in order to grow their state economies and create good jobs in the private market. These states are leading the way out of our fiscal decline.

Minnesota and Governor Dayton, however, got very different report cards this week from two leading policy organizations.

The Tax Foundation’s 2012 State Business Tax Climate Index  ranked Minnesota 45^th out of 50 again this year for business tax climate (looks at corporate, individual income, sales, unemployment and property taxes). In fact, Minnesota was ranked only slightly better than the notorious California, New York and New Jersey.

“The Index….enables business leaders, government policymakers, and taxpayers to make an apples-to-apples comparison of their state’s tax system. While some similar studies focus on the total amount residents pay in taxes each year, the Index focuses on whether the state’s tax code itself enhances or harms the competitiveness of its business environment.”

A report card “Fiscal Policy Report Card on America’s Governors 2012” from our friends at CATO was released this week, as well. The approach is straightforward: “It uses statistical data to grade the governors on their taxing and spending records—governors who have cut taxes and spending the most receive the highest grades, while those who have increased taxes and spending the most receive the lowest grades.”

Most of American Experiment’s readers will not be surprised that Governor Mark Dayton received a grade of “F”. Here is what the author had to say about the company we are keeping: “Unfortunately, there are some states going in the wrong direction on fiscal policy. The Cato report card gave "F" grades to Pat Quinn of Illinois, Dan Malloy of Connecticut, Mark Dayton of Minnesota, Neil Abercrombie of Hawaii and Chris Gregoire of Washington. These governors are big spenders and they all pushed major tax hikes, which have undercut the economic recovery.”

CATO summed up Governor Dayton’s tenure thus far: “Mark Dayton of Minnesota soon revealed his taste for bigger government after he entered office in 2011. General fund spending jumped almost 10 percent in his first year in office. To fund the spending, he proposed a large tax increase to raise $2 billion a year. The plan would have raised the top personal income tax rate from 7.85 to 10.95 percent, with an additional 3 percentage point tax on top of that for the highest earners. Dayton also wanted business tax increases and a new property tax on higher-valued homes. The legislature rejected Dayton’s tax increase plans.”

Imagine what the Governor could achieve with a more cooperative legislature.