Inflation: What didn’t cause it?
In the year to June, the Consumer Price Index rose by 8.5%. What caused this? Let us first eliminate some answers by looking at what didn’t cause this. As I…
Today, House Democrats unveiled their tax bill. Like the governor’s proposed budget, it advocates tax hikes. This is based on the idea that Minnesota’s state government is so badly squeezed for revenue that it just can’t go on providing core functions such as road building and maintenance, unless the state’s citizens hand over some more of their hard earned money. Is this true?
Minnesota’s Department of Revenue provides data going back to 1974 of State Tax Collections by Type of Tax. We can see how much money our state government has collected in income tax, the corporate franchise tax, the estate tax etc. Of course, the dollar of 1974 was worth more than the dollar of 2017. So, to compare across time we have to adjust these numbers for inflation.
Figure 1 shows, in 2017$, Minnesota’s Total State Tax Collections from 1974 to 2017. We see that Minnesota’s total state tax collections are, in fact, near their all time high. They peaked in 2016 at $24.1 billion. They fell by 0.9% in 2017 to $23.9 billion, but this was still higher than any year on record except for 2016.
Figure 1: Minnesota’s Total State Tax Collections, 1974-2017, billions 2017$
Source: Minnesota Department of Revenue and Bureau of Labor Statistics
Of course, Minnesota’s population has risen over this period. According to Census Bureau data taken from the Bureau of Economic Analysis, the state’s population increased from 3.9 million in 1974 to 5.6 million in 2017, a rise of 42.8%. Has the amount of money the state’s government has to spend per head of population fallen over this period?
Figure 2 suggests not. This shows Total State Tax Collections from 1974 to 2017 in 2017$ divided by the population in each year to give real per capita state tax revenues. We see that per capita tax revenues have risen from $2,347 in 1974 to $4,295 in 2018. While population may have increased by 42.8% over this period, Total State Tax Collections surged by 161.4%. Once again, we see that 2016 was a record year and that 2017 was just 1.7% down from that high making it the third highest year on record.
Figure 2: Minnesota’s Total State Tax Collections per capita, 1974-2017, 2017$
Source: Minnesota Department of Revenue and Bureau of Economic Analysis
Looking at these numbers, it is hard to see the pressing fiscal crisis which Minnesota’s policymakers claim necessitates a fresh, deep dive into its taxpayer’s pockets. It may be that the ‘need’ for the state government to spend money has increased even faster than these revenues. But, if this is the case, we ought to know why. We also ought to know why a core function such as road maintenance has been so neglected that the American Society of Civil Engineers gives our roads a D+ and the governor wants to hike the gas tax by 70% to pay for repairs. You have near record amounts of money, where has all that gone?
John Phelan is an economist at the Center of the American Experiment.