Are Minnesotans getting good government for their high taxes?
My recent Star Tribune op ed ‘Migration out of Minnesota is on the rise’ drew a spirited response in the letters page, which I replied to at length yesterday. The letter opened with one of the arguments most commonly heard when you point out that Minnesota’s taxes might be a bit too high:
I like Minnesota’s infrastructure, its high-quality educational system, its artistic scene, its sports scene and its medical care system, to name a few items. All of these things are supported by the taxes we pay.
So, we all seem to accept that Minnesota imposes high taxes. Some argue that that’s a fair price to pay for all the absolutely necessary stuff the state government does for us in a really efficient manner. Does that sound right?
While my respondent is purring over our state’s infrastructure, others are less enamored. Governor Tim Walz, for example, said last year that “Minnesota’s crumbling infrastructure is putting our safety at risk.” The American Society of Civil Engineers said that “Minnesota’s 140,000 miles of roads are in poor condition, earning a grade of a “D+.”
And this isn’t down to a lack of revenue. As I wrote recently, Minnesota state government spending per Minnesotan is up 20% in real terms since 2010. The 2019 figures for total state spending, $42.6 billion with per capita state spending of $7,548, are the highest in Minnesota’s history.
You may hear the argument “If it wasn’t for government/taxes, who would pay for the roads?” Well, Minnesota’s government is taking record amounts in tax from the state’s citizens and it still can’t keep the roads in shape. Does that sound like value for money?
Won’t somebody think about the children?
Well, what about education? In the much quoted U.S. News ranking, Minnesota comes in 7th nationally, so surely we’re getting some bang for our tax bucks there, aren’t we?
Not so fast. A while ago I put together a scatterplot of all fifty state’s rankings for their Individual Income Taxes taken from the Tax Foundation and their rankings on scores from the National Assessment of Education Progress (NAEP). As Figure 1 shows, there is no correlation between how high a state’s tax burden is and how well its education system performs.
Figure 1 – State rankings for Individual Income Taxes and their scores on the National Assessment of Education Progress
Source: National Assessment of Education Progress and the Tax Foundation
When you look at the state’s entire tax burden, taking in corporate taxes, individual income taxes, sales taxes, property taxes, and unemployment insurance taxes (again from the Tax Foundation), you see much the same story, as Figure 2 shows.
Figure 2 – State rankings for overall tax burden and their scores on the National Assessment of Education Progress
Source: National Assessment of Education Progress and the Tax Foundation
If you’re looking for bang for tax bucks, we don’t look to Minnesota – which gets an education ranking of 4th (1st being best) with a tax burden ranked 43rd (50th being heaviest) – but to New Hampshire, which gets an education ranking of 3rd with a tax burden ranked 6th, or Massachusetts, which gets an education ranking of 1st with a tax burden ranked 29th. These other states are getting comparable results in education with much lower tax burdens.
Minnesota sports? You really want to go there?
Then we come to Minnesota’s “sports scene”.
Occasionally, my boss suggests that we dedicate an issue of our magazine, Thinking Minnesota, to Minnesota sports. The idea never makes it out of the staff meeting because it would be about the most depressing read since Love Story. The Vikings, for example, have the highest regular season win percentage of any team to never win the Super Bowl, indeed, they have a better percentage than the 49ers who have won it five times. In January, they became the first NFL team with 30 postseason losses, a record. They also have the record for the most postseason games without a Super Bowl victory. They are tied with the Buffalo Bills for the most Super Bowl appearances without winning one. The last time they played in the Super Bowl – January 9th, 1977 – they were airing against The Six Million Dollar Man on ABC, Burt Reynolds was about to drop his first Smokey and the Bandit film, and Marilyn McCoo and Billy Davis, Jr. (I know, who?) were top of the Billboard Hot 100 with ‘You Don’t Have to Be a Star (To Be in My Show)’. With the notable exception of the Minnesota Lynx, all our state’s franchises can tell similar tales of woe. Only a masochist or a Packers fan could list this as one of the state’s virtues.
My respondent is right that Minnesota’s taxpayers have supported this. Both the US Bank Stadium and Target Field got taxpayer funds. The question is should they?
As I wrote a while back,
Cities are supposed to benefit from having these stadiums so it makes sense to pay for them. That is not the case.
As economist Dennis Coates wrote in 2015,
“I co-authored a study in 1999 with Brad Humphreys. It examined the sports environment in every city with at least one NBA, NFL or Major League Baseball franchise at some time from 1969-96. Our findings were clear: Professional sports had no positive impact on an area’s economy, and actually harmed residents’ per capita incomes.
I recently updated the data, added the NHL and Major League Soccer, and examined the full set of U.S. cities, rather than only those with a team. The analysis also benefits from the stadiums and arena-building boom of the ’90s.
The lesson for cities, unfortunately, is the same. The sports environment still has little effect on the financial resources of most people. For example, across all seasons and cities, sports contributes about 0.2 percent to the wage earnings of the typical worker, about $50 per year to someone earning $17,000 a year.
Now, as then, the data disprove the claim that a city can use stadium and arena construction, or the attraction or retention of a professional sports franchise, to enhance the income of its citizens.”
Economist Scott A. Wolla recently wrote that
“In a 2017 poll, 83 percent of the economists surveyed agreed that ‘Providing state and local subsidies to build stadiums for professional sports teams is likely to cost the relevant taxpayers more than any local economic benefits that are generated.’”
It gets worse. As I wrote last month, our state’s high taxes might actually be a cause of the Vikings’ perennial underachievement:
In a recent paper titled ‘Touchdowns, Sacks and Income Tax – How the Taxman decides who wins the Super Bowl‘, economist Matthias Petutschnig from the the Vienna University of Economics and Business looks at a 23-year period from 1994 to 2016. He finds “a significant negative relation between the amount of the net (after-tax) salary cap represented by the personal income tax rate of the teams’ home states and the success of the teams.”
What does it all add up to?
So, for our high taxes we get crummy infrastructure, education as good as in states with much lower taxes, and sports teams underachieving in stadiums we lose money on. The myth that Minnesotans get value for money out of their state government dies hard.
Take it away Marilyn McCoo & Billy Davis Jr…
John Phelan is an economist at the Center of the American Experiment.