News & Updates

Conservative Think Tank's Report Misses the Mark

by | Aug 15, 2016 | Other

The Center of the American Experiment (CAE) released a new report today, bemoaning Minnesota’s “mediocre” economic performance since 2000. Some of the trends noted in the report are legitimate, while others are not. However, the insinuation that “Minnesota’s blue-state policies” are “responsible for its economic underperformance” is bogus and unsupported by information in the report or anywhere else.

The attempt to attribute Minnesota’s lackluster economic performance during the 21st century has already been rebutted in a recent North Star series of articles.

  • Part 1 of that series argued that it is dangerous to make simplistic correlations between a state’s economic performance and its fiscal policies given the large number of other factors which drive a state’s economy; winnowing out the impact of fiscal policy from amongst all these other factors is nigh onto impossible. To the extent that the CAE insists on attributing Minnesota’s economic performance since 2000 to state fiscal policy, they must acknowledge that conservative policies dominated Minnesota’s fiscal agenda for most of the century. As a result of these policies, real per capita state and local government spending in Minnesota declined at the third fastest rate among the fifty states from 2000 to 2013; in fact, by 2013, Minnesota state and local spending as a percent of statewide personal income was below the national average.
  • Part 2 and part 4 revealed that Minnesota’s wage and GDP growth—which had been modestly below the national average during the period prior to 2013—has been modestly above the national average since then.  While it cannot be proven that progressive policies implemented in 2013 were responsible for this turnaround, these facts certainly belie the claim that “blue state policies” were hurting the state’s economy.
  • Part 3 notes that while employment growth in Minnesota has been below the national average since 2000, this trend persists during periods of both conservative and progressive policies. Minnesota’s relatively low rate of job growth is in part due to the state’s low unemployment rate and nation-leading labor participation rate—which reduces the pool of workers available to fuel job growth—and to other factors common to northern states which cannot be plausibly attributed to fiscal policy.
  • Part 5 wrapped up the series by noting that when conservative interest groups insist on attributing mediocre economic outcomes since 2000 to state fiscal policy, they must accept a large share of the responsibility for these outcomes, since their policies dominated for the vast majority of the century.

The CAE report notes that recent Minnesota job growth has been centered on “less productive jobs” and that high-technology employment is declining. To some extent, these trends could be the result of conservative policies that cut education funding. A recent North Star report found that real per pupil state operating aid to Minnesota school districts fell by 17 percent from 2003 to 2013, while another North Star report revealed that real per student state instructional support of higher education declined by 33 percent over the same period. To be intellectually honest, conservatives must be willing to entertain the fact that some of the trends they decry may be the result of their own chickens coming home to roost.

Other trends cited in the CAE report are either exaggerated or completely off base. For example, the claim of projected below average per capita income growth in Minnesota relative to the national average is overstated. Based on an analysis of personal income data from the U.S. BEA and projections from Minnesota Management & Budget, personal income in Minnesota will increase by $6,500 per capita from 2016 to 2019–$300 per capita greater than the projected national average ($6,200).

per y growth

In addition, CAE once again trots out the largely discredited claim of massive income migration. These claims are based on IRS Statistics of Income (SOI); conservative economist Lyman Stone notes that:

It is common for migration commentators to treat the AGI [adjusted gross income] of IRS SOI migrants as “migration of money.” This is an egregiously wrong use of the data. The IRS SOI user guide makes clear that this is not a viable interpretation of the data, and thus those who read the data this way have either failed to perform the most basic due diligence by looking at the manual, or else actively mislead their readers.

Furthermore, the CAE conveniently ignores new Minnesota Department of Revenue data which demonstrates a significant increase in the number of very high-income taxpayers and the income taxes paid by them in the year following enactment of a new “top tier” income tax rate targeted at high-income households, as well as other critiques of the “income migration” claim based on IRS SOI data. Perhaps most importantly, CAE income migration claims ignore the fact that most of Minnesota’s alleged income migration occurred while conservative policies dominated the state’s fiscal agenda.

Data from other sources paint a far more optimistic picture of Minnesota’s economic performance. For example, Minnesota:

  • Leads the 50 states on Gallup’s 2016 Job Creation Index, based on workers’ reports of hiring activity at their place of employment
  • Is #4 on CNBC’s 2016 list of top states for business
  • Is #1 on Forbes ranking of states based on quality of life
  • Leads the nation as the best state for child well-being
  • Recently had its bond rating upgraded to AAA by Fitch due in part to “Minnesota’s solid and broad-based economy.”

Absent from the CAE report is any hard data linking Minnesota’s “mediocre” economic performance to “blue state policies,” but this is the least of its problems. Apart from exaggerating claims of Minnesota’s economic demise, the report is oblivious to the fact that conservatives dominated Minnesota fiscal policy for the vast majority of the 21st century and thus—to the extent they insist on attributing economic outcomes to state fiscal policy—they must logically be largely responsible for the trends they decry.

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