Data shows that states with lower taxes have higher quality of life

Last week, MPR carried a story titled ‘Cold got you thinking about where to retire? Arizona is tops for snowbirds‘. It cited our report Minnesotans on the Move to Lower Tax States 2016, and quoted Art Rolnick, former director of research at the Federal Reserve Bank of Minneapolis, disputing it.

“It’s not high taxes,” he said.

“It’s the bitter cold that makes people relocate, at least for the winter.”

This time of year, Rolnick spends several months recharging in Phoenix. And he said there’s a lot of seasonal snowbirds like him from Minnesota. He said that like them, he’ll remain a Minnesotan for life.

“Minnesota has, I think, one of the best qualities of life in the country,” Rolnick said. “It’s got a wonderful education system. It’s got wonderful theater. It’s got wonderful arts. It’s a great place to live in and have your kids grow up.”

Minnesotans get a benefit from the high taxes they pay, Rolnick said.

“There’s a trade-off there. You can move to a state that has significantly lower taxes for you. And that may work. But odds are the quality of life just isn’t going to be what it is in Minnesota,” he said.

It is true that Minnesota has an excellent quality of life. On just that measure, US News ranked our state second in the nation in 2018. But its less clear that Minnesota’s high taxes drive this, as Mr. Rolnick asserts.

Figure 1 shows the state’s scores on the US News ranking for quality of life on the vertical axis and the state’s overall rankings for their tax systems from the Tax Foundation on the horizontal axis (both for 2018). Contrary to what Mr. Rolnick asserts, we see, in fact, that states with lower taxes as measured by the Tax Foundation tend to have high quality of life as measured US News. Indeed, the states with the highest tax states, such as California and New Jersey, have the poorest quality of life.

Figure 1 – State quality of life and taxes

Sources: US News and the Tax Foundation

It is true that Minnesota has a high quality of living. But the evidence shows that this is despite of the state’s high taxes, not because of them, as Mr. Rolnick asserts.