Latest Posts

Home

Facebook

Twitter

Search
About

Minnesota’s revenue shortfall offers a sign for concern and a lesson in economics

Late yesterday, the Minnesota Management and Budget announced that our state’s general fund receipts for the financial year 2017 were now estimated to total $20.949 billion – $104 million (0.5%) less than projected in February 2017.

Sales, corporate, and other tax revenues are all set to beat February’s predictions. But income tax receipts are predicted to come in $260 million (2.3%) lower than forecast, more than offsetting this (See table).
Table

Source: Minnesota Management and Budget

Why the shortfall? 

Minnesota Management and Budget offers two explanations.

data from the Quarterly Census on Employment and Wages (QCEW) now suggests that Minnesota wage and salary income grew about one percentage point more slowly in 2016 than we had forecast in February. That is consistent with tax year 2016 net income tax receipts coming in short of forecast. In addition, non-wage income—particularly capital gains—may have grown more slowly in 2016 than we had forecast. The Congressional Budget Office (CBO) has speculated that weak federal income tax payments for 2016 may be due in part to taxpayers shifting payments from 2016 into later years in anticipation of federal tax rate cuts.

A sign for concern and a lesson in economics

The first of these explanations, the slowdown in Minnesotan wage and salary income growth, is a little concerning. As we noted in our report on the state’s economy last year, income growth has lagged the national average in recent years.

The second explanation, that people are deferring income in expectation of tax changes, demonstrates that people respond to economic incentives. Differing tax rates can, as we have reported previously, cause people to move. Indeed, there is even evidence from the United States and Australia indicating that people die at more tax efficient times.

These latest figures offer Minnesotans two things. First, is a reminder not to take the state’s economic performance for granted. Second, a lesson that taxes affect economic activity. Both should be heeded.

John Phelan is an economist at the Center of the American Experiment.

Comments

Subscribe

Categories

Upcoming Events

  • YLC Curling Event

    Location: Chaska Curling Center 3210 Chaska Blvd, Chaska, MN 55318

    Grab your broom and stone and join the Young Leadership Council for an evening of Curling at the Chaska Curling Center! $40 registration includes: Instruction Ice time and equipment Appetizers (Curling Center Bar will be available to purchase drinks) The event will begin with 15-20 minutes of classroom instruction on curling rules and basics followed by 20-30 minutes on the ice for practice and drills. Instructors will be on hand the whole evening to guide your games. Dress Code: Bring a pair of clean-on-the-bottom shoes to change into. No leather soles or metal lace hooks Loose fitting or strechy clothes…

    Register Now
  • The Diversity Delusion

    Location: Hilton Minneapolis 1001 South Marquette Avenue Minneapolis, MN 55403

    Please join Center of the American Experiment on Wednesday, April 24th at the Hilton Hotel for a lunch forum with Heather Mac Donald as she discusses her new book, The Diversity Delusion: How Race and Gender Pandering Corrupt the University and Undermine Our Culture.  Heather Mac Donald is the Thomas W. Smith Fellow at the Manhattan Institute, a contributing editor of City Journal, and a New York Times bestselling author. She is a recipient of the 2005 Bradley Prize. Mac Donald’s work at City Journal has covered a range of topics, including higher education, immigration, policing, homelessness and homeless advocacy, criminal-justice reform, and race…

    Register Now
  • 2019 Annual Dinner Featuring Nigel Farage

    Location: Hilton Minneapolis 1001 South Marquette Avenue Minneapolis, MN 55403

    Purchase Tickets Here

    Register Now