fbpx

Latest Posts

Home

Facebook

Twitter

Search
About

Minnesota ranks 40th in the US for economic freedom

Last week saw the publication by the Fraser Institute of their Economic Freedom of North America 2017. This “measures the extent to which the policies of individual provinces and states were, in 2015, supportive of economic freedom, the ability of individuals to act in the economic sphere free of undue restrictions.”

Economic freedom

In the report, economic freedom is defined as

Individuals have economic freedom when (a) property they acquire without the use of force, fraud, or theft is protected from physical invasions by others and (b) they are free to use, exchange, or give their property as long as their actions do not violate the identical rights of others. Thus, an index of economic freedom should measure the extent to which rightly acquired property is protected and individuals are engaged in voluntary transactions.

Research shows that economic freedom is positively correlated with per-capita income, economic growth, greater life expectancy, lower child mortality, the development of democratic institutions, civil and political freedoms, and other desirable social and economic outcomes.

The results

So what did the results show?

In the United States, the most economically free state was New Hampshire at 8.3, followed at 8.1 by Florida and Texas. South Dakota is fourth at 8.0. The least-free state was New York at 5.3, following California at 5.8. New Mexico and West Virginia were tied for 47th at 6.1.

As Figures 1 and 2 show, Minnesota was in the bottom quartile, ranked 40th. This was an improvement on last year.

Figure 1: States by economic freedom, 2015

Source: The Fraser Institute

Figure 2: Summary of US Ratings for Economic Freedom at the Subnational Level, 2015

Source: The Fraser Institute

Our taxes are to blame

This score was primarily driven by our state’s high rates of personal and corporate taxation. This will come as no surprise. As we find in our new report, The State of Minnesota’s Economy: 2017, Minnesota is one of the most heavily taxed states in the union.

As a share of personal income, state-local taxes are higher in Minnesota than in all but seven other states, as Figure 3 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 3: State-Local tax burdens per capita as a percentage of income

Source: The Tax Foundation

The Tax Foundation ranks Minnesota 46th out of the 50 states for its business tax climate. Minnesota imposes a deduction schedule for natural resource depletion on top of the federal one, and is one of only eight states to have an Alternative Minimum Tax on corporations. These add another layer of compliance difficulties beyond the federal. Furthermore, as Figure 4 shows, while we exempt items like food and clothing, we have the eighth highest state sales tax in the country.

Figure 4: State Sales Tax rates

Source: The Tax Foundation

More importantly perhaps, Minnesota’s top rate of Corporate Income Tax is 9.8 per cent. As Figure 5 shows, this is the third highest in the U.S. Only Iowa (12 percent) and Pennsylvania (9.99 percent) have higher rates. Evidence shows that corporate income tax rates are a big influence in foreign investment decisions.

Figure 5: Top Rates of Corporate Income Tax

Source: The Tax Foundation

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

Comments

Subscribe

Categories

Upcoming Events

  • Morning in Minnesota: St. Cloud

    Location: St. Cloud

    Sign up HERE! Courtyard by Marriott St. Cloud 404 West Saint Germain Street St. Cloud, MN, 56301 Please join Center of the American Experiment on Tuesday, July 21 for breakfast with Center policy fellow and education expert Catrin Wigfall as she explains K-12 education in the state and its persistent disparities despite decades of increased spending. Following her presentation, Catrin will lead a Q&A session. 7:30 AM Check In and Breakfast 8:00 AM Presentation 9:00 AM Conclude   Catrin Wigfall is a Policy Fellow at Center of the American Experiment. She is also the director of EducatedTeachersMN and EmployeeFreedomMN. Catrin’s…

    Register Now
  • Kristi Noem: The Courage to Reject a Shutdown

    Location: Online

    Sign up HERE! Join us Wednesday, July 8th for an interview with South Dakota Governor Kristi Noem over Zoom. In response to COVID-19, Noem defied the norm of a statewide shutdown and let South Dakotans choose for themselves what safety precautions to take. Tune in to this live online event to hear how Governor Noem preserved her state’s economy while still keeping citizens safe. Wednesday, July 8th at Noon CT Sign up HERE!  

    Register Now
  • Morning in Minnesota: Marshall

    Location: Marshall Golf Club

      Sign up for this event HERE! Please join Center of the American Experiment on Thursday, July 16 at Marshall Golf Club for a breakfast with Center economist, John Phelan, as he discusses Minnesota’s economic future. Following his presentation, John will lead a Q&A session. 7:30 AM Check In and Breakfast 8:00 AM Presentation 9:00 AM Conclude John Phelan is a graduate of Birkbeck College, University of London, where he earned a BSc in Economics, and of the London School of Economics where he earned an MSc. He worked in finance for ten years before becoming a professional economist. He…

    Register Now