Is Minnesota Keeping Up with Its Neighbors?

Conservative groups are spinning a narrative that Minnesota’s economy has been slipping due to the tax increases enacted in 2013. The centerpiece of the 2013 tax act was a 2.0 percent income tax rate increase targeted to the state’s highest income households. The new revenue generated from the 2013 tax act helped to balance the state’s budget, increase funding for K-12 and higher education, boost revenues for Minnesota local governments, reduce property taxes, and make new investments and affordable housing and healthcare.

So have the tax increases enacted in 2013 hurt Minnesota’s economy? If the answer is yes, that decline should be evident in the form of diminished economic performance relative to adjacent states, which are similar to Minnesota in terms of climate and proximity to markets and, to some extent, demography. The following analysis will compare Minnesota to its four contiguous neighbors (Iowa, North Dakota, South Dakota, and Wisconsin) in terms of three widely accepted measures of economic performance: growth in jobs, personal income, and gross domestic product (GDP) since passage of the tax act in May 2013.*

MN vs adjacent states

Since passage of the 2013 tax act, Minnesota has surpassed adjacent states by a modest margin in terms of job growth and by a fairly large margin in terms of personal income and GDP growth. To some extent, the adjacent state averages are pulled down by North Dakota’s poor economic performance resulting from the decline in oil prices. However, North Dakota—even before the Bakken oil boom—was a small slice of the total economy of all four adjacent states and not a huge influence on the four-state average. Furthermore, Minnesota still surpasses the adjacent state average on all three measures even if North Dakota is excluded. In fact, Minnesota tops all four adjacent states in a one-on-one comparison on all three measures.

No one can say with certainty whether the actions of the 2013 legislature—which includes not only a net tax increase, but also a corresponding increase in public investments—are the cause of Minnesota’s superior performance vis-à-vis adjacent states. After all, the relative economic performance of various states is influenced by a myriad of factors; with few exceptions, it is difficult to impossible to determine the precise net impact of any one event or set of events. Furthermore, some of the increased expenditures made possible by the 2013 tax act—such as increased investment and K-12 and higher education—will not achieve their full effect in terms of improving Minnesota’s workforce until some point in the future.

However, based on a comparison to adjacent states which constitute a reasonable benchmark by which to evaluate Minnesota’s performance, there is no indication that the 2013 tax act has done anything to harm the state’s economy. In short, the job flight and economic stagnation predicted by conservatives has not materialized. Minnesota is not only keeping up with—but surpassing—its neighbors in terms of critical measures of economic growth.

 

 

*Employment growth is measured from May 2013 to February 2016 based on the Current Population Survey from the U.S. Bureau of Labor Statistics. Personal income growth is measured from the second quarter of 2013 to the fourth quarter of 2015 based on data from the U.S. Bureau of Economic Analysis (BEA). GDP growth is measured from the second quarter of 2013 to the third quarter of 2015 based on data from the U.S. BEA. In each instance, the endpoint of the measurement represents the most current data available at the time of publication.