Cost of government soars due to inflation
Just about everything costs more these days with the rate of inflation running at close to nine percent. Unfortunately for state taxpayers, that includes the price of government at all…
This op ed appeared at Minn Post on March 7th, 2019
Are Minnesota’s taxes too high?
This was the question posed by MinnPost reporter Peter Callaghan last week. Nobody denies that Minnesotans are some of the most heavily taxed people in America. As the Center of the American Experiment noted in our report, “The State of Minnesota’s Economy: 2018,” the state’s top rate of income tax — 9.85 percent on taxable incomes over $156,911 — is higher than anywhere else apart from California, Hawaii, and Oregon. And Minnesota’s lowest income tax rate of 5.35 percent is higher than the highest tax bracket in 23 states.
But, so the argument goes, they get a lot from their state government in return for these high taxes. Callaghan quoted Sen. Melisa Franzen, DFL-Edina, as saying, “When people and businesses come here, they’re not doing us a favor to pay their taxes. … They know what they’re getting in return with the investments that we make in our roads and bridges and education and workforce.”
But is this true?
Franzen’s praise for Minnesota’s roads and bridges is rather surprising given that Gov. Tim Walz is proposing to raise the state’s gas tax by 20 cents a gallon – from 28th nationally to fourth – because, he says, “Minnesota’s crumbling infrastructure is putting our safety at risk.” Indeed, the American Society of Civil Engineers recently said that “Minnesota’s 140,000 miles of roads are in poor condition, earning a grade of a “D+.” In terms of “roads and bridges,” it isn’t clear what the “people and businesses” who come to Minnesota are getting for their high taxes.
Franzen might seem to be on firmer ground with the state’s education system. In the much-quoted U.S. News and World Report ranking, Minnesota comes in seventh nationally. On scores from the National Assessment of Education Progress (NAEP), our state ranks fourth.
But if this is a result of our high taxes, as Franzen argues, how do we explain the performance of Massachusetts, which comes top on the NAEP scores but ranked 11th lowest nationally in 2018 for its Individual Income Tax, according to the Tax Foundation, while Minnesota ranks 46th? How is it that New Hampshire’s education system performs better – ranking third – with an Individual Income Tax ranking of ninth nationally? At the other end, the District of Columbia ranks 48th nationally for its Individual Income Tax. On Franzen’s logic, it should have a good education system to show for this high tax burden. Instead, it ranks a lowly 51st on the NAEP scores.
In short, there is no correlation between how high a state’s tax burden is and how well its education system performs (See Figure 1 below). The examples of New Hampshire and Massachusetts show that we could have slightly better educational outcomes at a much lower tax burden.
Minnesota has high taxes and lousy roads. It has high taxes and good educational outcomes, but other states have better outcomes with much lower taxes. The idea that Minnesotans get value for their high taxes is an article of faith in the state. Sadly, it isn’t supported by the evidence.
John Phelan is an economist at the Center of the American Experiment.
Figure 1: Individual Income Tax burdens and NAEP scores
Source: The Tax Foundation and the National Assessment of Education Progress