Minnesota’s Economic News – W/E 4/16/21
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Ranking the states by various metrics might be replacing baseball as America’s pastime. Yesterday saw the release of U.S. News & World Report’s annual ‘Best States Rankings‘. These were reported in all of Minnesota’s major news platforms, the main finding being that our state ranked 3rd overall.
Higher taxes don’t make for a better state
Immediately, some seized on this as evidence that Minnesota’s high taxes are actually a really good thing. They argued that our high ranking as a ‘best state’ was a result of our high taxes.
The evidence does not support this argument. Figure 1, below, compares the state rankings according to U.S. News and World Report and their rankings for overall tax burden from the Tax Foundation.
Figure 1: Best states and high tax states
Source: U.S. News and World Report and the Tax Foundation
We see no strong relationship between a state’s tax burden, as measured by the Tax Foundation, and whether it is a better or worse state, according to U.S. News & World Report. Simply put, the causal relationship of ‘High taxes > Better state’ which these people posit, just does not exist. Washington and New Hampshire, the two states which rank above Minnesota, rank an average 20th and a low 6th for tax burden compared to Minnesota’s 43rd. The two states which U.S. News & World Report rank below us, Utah and Vermont, have relatively low (8th) and relatively high (41st) tax burdens respectively.
The theory that higher taxes make a state better as measured by some ranking is a very easy one to check against data. Why don’t people do so before putting it out there? When you hear someone say that Minnesota’s high ranking on something like this is a result of our high taxes, you are not listening to serious analysis. You hearing the sad sound of confirmation bias.
John Phelan is an economist at the Center of the American Experiment.