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The Left’s First Response to our Paper on Minnesota’s Economy

We have been all over Minnesota’s newspapers and radio and television stations for the last couple of days, talking about Dr. Joseph Kennedy’s important new paper on Minnesota’s economy. We want to provoke debate and discussion, so we look forward to getting dissenting views from the Left. The first one came in yesterday, from the North Star Policy Institute. As one might expect, North Star whiffs.

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North Star begins by claiming that Minnesota is a red state, so if our economy is mediocre, conservative principles must be to blame. (“It is simply unbelievable to blame ‘blue-state policies’ for red state outcomes,” said North Star Executive Director Stephanie Fenner.”) This is a mind-boggling assertion, and it would come as a surprise to Barack Obama, Mark Dayton and other liberals who have touted the success of Minnesota’s progressive policies.

The definitive analysis of state and local tax burdens comes from the Tax Foundation. In 2012, Minnesota and the eighth highest tax burden in the United States. And that was before the steep income tax increase that the legislature enacted in 2013. Updated numbers have not yet been produced, but it is likely that Minnesota now ranks among the top five high-tax states. The numbers have bounced around a bit over the years, but Minnesota has always been a high-tax state during the relevant period: 14th in 2002, 14th in 2005, 11th in 2008 and 7th in 2010.

Nor is Minnesota’s regulatory climate “red.” The costs of regulation are harder to quantify than the costs of taxation (e.g., how much has Minnesota lost because of its inability to approve permits for new mining operations in the northern part of the state?), but the Pacific Research Institute has estimated regulatory costs in each of the 50 states. PRI ranked Minnesota #32, which means that 31 states had less costly regulatory regimes, while only 18 had more burdensome regulations.

So Minnesota is top ten in taxes and top twenty in regulatory burden: that’s some red state! Obviously, as is well known, Minnesota’s political culture has been liberal for many years.

North Star claims that “Minnesota’s wage and GDP growth—which had been modestly below the national average during the period prior to 2013—has been modestly above the national average since then,” suggesting that the tax increases of 2013 may be responsible. But it is ridiculous to think that a tax increase will instantaneously cause a jump in wages or production. Figures 1 and 9 in the Kennedy report show how Minnesota fared against the United States as a whole with regard to GDP and average wage, respectively. As for wages, Minnesota opened up a relatively significant advantage between 2000 and 2005, which was then lost. On both of these metrics, Minnesota’s performance was very close to the nation’s for the period of 2000 to 2015, and both were rated “average” by Dr. Kennedy.

North Star doesn’t have anything to say about the vast majority of the data marshaled in the Kennedy report, but one additional point worth mentioning is its assertion that the income migration data that are included in the report are “largely discredited.” This claim is ridiculous. The data are taken straight from the IRS’s database. Peter Nelson has already refuted the same criticisms of his analysis of the IRS data here and here. North Star’s complaints are tired claims that have already been debunked.

In short, North Star swings and misses. We await the next liberal effort to paper over the undeniable facts about Minnesota’s economy.

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