fbpx

Latest Posts

Home

Facebook

Twitter

Search
About

Minnesota needs productive workers but it is losing those it already has

Over the last few weeks, I’ve gone over our new report, The State of Minnesota’s Economy: 2017, in a bit of detail. Having talked a bit about the state’s economy from the turn of the century to now, what might the future hold for Minnesota’s economy?

On Tuesday, I talked about how a more productive Minnesotan workforce could offset the declining share of the state’s population working to generate growth in per capita GDP. I suggested two ways of doing this; 1) attract and/or retain high productivity workers, and 2) improve the productivity of those workers who are less skilled. Yesterday, I addressed the point about attracting high productivity workers. Sadly, on the second point – retaining the high productivity workers we do have – our state performs badly.

Minnesota’s brain drain

If workers of above average productivity leave Minnesota, that will drag down the average of worker productivity. This will depress Total GDP. It will also lower GDP per capita as Total GDP declines by more than population.

There is evidence to show that this is currently happening. Using income as a proxy for productivity, Figure shows that Minnesota attracts low-income residents and loses higher-income ones. Furthermore, these losses are not limited to the so-called ‘rich’ who might be fleeing the state’s high top rate of tax. Between 2011 and 2015, Minnesota saw a net outflow of people earning more than a modest $25,000 annually.

Figure 1: Net flow of taxpayers and dependents to Minnesota by income of primary taxpayer, 2011 to 2015

Source: Internal Revenue Service

As we explain in the report, there is evidence that Minnesota’s high personal tax rates are a factor in these movements. As a share of personal income, state-local taxes are higher in Minnesota than in all but seven other states, as Figure 2 shows. Minnesota is one of the 43 states to have its own income tax, but the top rate – 9.85% on incomes over $156,911 – is higher than anywhere else apart from California, Maine, and Oregon. Equally significant, perhaps, is the fact that Minnesota’s lowest income tax rate of 5.35% is higher than the highest tax bracket in 23 states.

Figure 2: State-Local tax burdens per capita as a percentage of income

Source: The Tax Foundation

A common misconception is that this out-migration is primarily accounted for by ‘snow birds,’ older Minnesotans leaving the state for friendlier climates. This is not the case. As Figure 3 shows, between 2011 and 2015 Minnesota lost residents in every age group. Those less than 26 years old made up a large share of the loss. People aged 45 to 54 – people in the prime of their working lives – also made up a substantial share of the loss.

Figure 3: Net flow of taxpayers and dependents to Minnesota by age of primary taxpayer, 2011 to 2015

Source: Internal Revenue Service

Minnesota needs productive workers. Evidence suggests that, over the last few years, we have been losing them. This is not good for our state’s economy. Assuming that our high personal tax rates are an important factor in this, we need to revisit these. The state’s economy will suffer if we don’t.

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

Comments

Subscribe

Categories

Upcoming Events

  • Morning in Minnesota Breakfast Series: Winona

    Location: Signatures Restaurant, 22852 County Road 17, Winona, MN 55987

    Please join Center of the American Experiment Friday, March 6 at Signatures for a FREE breakfast with economist John Phelan.

    Register Now
  • Lunch Forum with Amity Shlaes

    Location: Hyatt Regency Minneapolis 1300 Nicollet Mall Minneapolis, MN 55403

    Buy tickets HERE. About This Event: Enjoy our Early Bird Ticket Special through February 23rd! After this date, ticket price will increase to $30. Doors open at 11:30 AM, program and lunch begin at Noon. In Great Society, the New York Times bestselling author of The Forgotten Man and Coolidgeoffers a stunning revision of our last great period of idealism, the 1960s, with burning relevance for our contemporary challenges. Today, a battle rages in our country. Many Americans are attracted to socialism and economic redistribution while opponents of those ideas argue for purer capitalism. In the 1960s, Americans sought the…

    Register Now
  • 2020 Annual Dinner Featuring Sarah Huckabee Sanders

    Location: Minneapolis Convention Center Ballroom 1301 2nd Ave S Minneapolis, MN 55403

    American President: The Unorthodox Approach to Politics that Changed the World. Sarah Huckabee Sanders served as White House Press Secretary for President Donald J. Trump from 2017 to 2019. A trusted confidant of the President, Sanders advised him on everything from press and communications strategy to personnel and policy. For two and a half years, Sanders was at the President’s side, battling with the media, working with lawmakers and CEOs, and staffing the President on every foreign trip, including dozens of meetings with foreign leaders. Sanders is only the third woman and the first mother to hold the job of…

    Register Now