Minnesota is a high tax state. Has been for decades. Minnesota is the Great Lakes States best in economic well being and demographic outcomes. Has been for decades.
Michigan is not a high tax state. Its taxes per capita far lower than Minnesota’s. Minnesota is far ahead of Michigan in all well being and demographic outcomes.
Minnesota has been a successful high tax state for decades. The Census Bureau reports in 1980 Minnesota had the 6th highest state taxes per capita in the country. Michigan ranked 13th. Minnesota’s state taxes per capita were 122 percent of Michigan’s. In 2021 Minnesota had the 5th highest state taxes per capita in the country. Michigan ranked 28th. Minnesota’s state taxes per capita were 163 percent of Michigan’s.
There is no question Minnesota is a high tax state––its residents paid $2,145 more in 2021 than Michigan residents in state taxes alone. So for decades Michigan chose lower taxes as its prime lever to compete for economic growth and population. While Minnesota for decades chose to use its higher taxes for public investments in good schools and high quality communities as its prime lever to compete for economic growth and population.
When you combine state and local taxes per capita in 2021 Minnesota was the 8th highest in nation, Michigan was the 19th lowest. State and local taxes per capita in Minnesota are $7,457, 118 percent of the national average. State and local taxes per capita in Michigan were $4,980, 79 percent of the national average.
Minnesota has a graduated individual income tax, with rates ranging from 5.35 percent to 9.85 percent. Minnesota also has a 9.80 percent corporate income tax rate. Minnesota has a 6.875 percent state sales tax rate, a max local sales tax rate of 2.00 percent, and an average combined state and local sales tax rate of 7.49 percent.
Michigan has a flat 4.25 percent individual income tax rate. There are also jurisdictions that collect local income taxes. Michigan has a 6.00 percent corporate income tax rate. Michigan has a 6.00 percent state sales tax rate and does not levy any local sales taxes.
We have been told over and over again for decades that high taxes leads to economic decline and depopulation. Think again!
- Minnesota has not lost a congressional seat in six decades while Michigan’s congressional delegation since 1960 has declined from 19 to 13.
- A recent study found that Minnesota is one of only nine “brain-gain” states with 8 percent more recent college graduates residents compared to those who graduated from its college and universities. Michigan is a “brain-drain” state with 14 percent fewer college graduates compared to those who graduated from its college and universities.
- In November 2022 Minnesota was tied for the second lowest unemployment rate in the country, Michigan was tied for 43rd.
- In November 2022 Minnesota was fifth in labor force participation, Michigan was 40th.
- In 2021 per capita income in Minnesota was three percent above the national average, ranking 13th. Michigan was 12 percent below the national average, ranking 35th.
- In 1979 Minnesota per capita income was one percent above the national average, Michigan was three percent above. So as Michigan’s state taxes per capita declined from 13th highest in the nation to 28th the state’s per capita income declined by fifteen percentage points compared to the nation. While Minnesota gained two percentage points while staying a high tax state.
Why is the conventional wisdom that high taxes leads to economic and population decline so wrong? Former New York City Mayor got it right when he wrote in a Financial Times op ed:
Many newly successful cities on the global stage – such as Shenzhen and Dubai – have sought to make themselves attractive to businesses based on price and infrastructure subsidies. Those competitive advantages can work in the short term, but they tend to be transitory. For cities to have sustained success, they must compete for the grand prize: intellectual capital and talent. I have long believed that talent attracts capital far more effectively and consistently than capital attracts talent. … Economists may not say it this way but the truth of the matter is: being cool counts. When people can find inspiration in a community that also offers great parks, safe streets and extensive mass transit, they vote with their feet.
At its core the Minnesota playbook for economic and demographic success has been higher taxes used for public investments to “compete for the grand prize: intellectual capital and talent” by offering good schools from birth through colleges and creating places where people want to live by offering high quality basic services, infrastructure and amenities.
Minnesota has used those higher taxes for services and investments that matter in a knowledge-based economy. An educated work force, efficient transportation systems, vibrant cities and metropolitan areas, and a secure safety net.
The Minnesota good schools and quality communities strategy has paid off in the best in the Great Lakes economic and demographic outcomes. Michigan’s low tax/low public investment strategy has been accompanied by a decades long decline compared to the nation in both economic and demographic outcomes.