Minnesota Outperforms Regional Migration, Population Trends

A new report from the conservative Tax Foundation and the Minnesota Chamber of Commerce—Minnesota Illustrated—generally paints a gloomy picture of Minnesota. The previous article in this series showed that this portrayal was inappropriately bleak in several regards, as job growth has been comparable to the national average and well above the regional average and that the state’s cost of living is below the national average despite the state’s high per capita income.

Like the Center of the American Experiment’s (CAE) migration report issued last year, the Tax Foundation and the Chamber sound an alarm on out-migration using the Internal Revenue Service’s Statistics of Income (IRS SOI). Unlike the CAE report, Minnesota Illustrated avoids the “egregiously wrong use of the data” (as described by a former Tax Foundation economist) by equating the IRS SOI data as a measure of the migration of income. Rather, it uses IRS SOI data to measure the migration of tax returns (which the following analysis will refer to as “tax filers”) and the number of exemptions on these returns.

The report notes that Minnesota has experienced a net loss of tax filers to other states in recent years. For example, from 2014 to 2015 Minnesota gained 32,604 tax filers from other states, but lost 36,116 filers to other states, for a net loss of 3,512. This translates into a net tax filer loss of 1.60 per 1,000 returns. In terms of the number of exemptions claimed on these returns, Minnesota gained 56,773 and lost 61,825, for a net loss of 5,052—or 1.09 per 1,000 exemptions.

This net loss, however, must be considered in context. The economies of Midwest states* have been hurt by the decline in the U.S. steel and iron industries, a decreased need for labor in making steel and other products as a result of automation, and cheaper labor costs in southern states with a more hostile environment to unions. Some of the Midwest states in the heart of the rust belt—such as Michigan, Indiana, and Ohio—have been more adversely impacted by these trends than Minnesota, although the Gopher State has not been entirely immune. In addition, as baby boomers have aged, an increasing number of retirees have departed the Midwest for warmer climes; being the most northern of the Midwest states, Minnesota is certainly not immune to this trend.

For a more apples-to-apples comparison, it is useful to examine out-migration in Minnesota relative to other Midwest states. In this regard, Minnesota compares favorably. Annual IRS SOI migration data based on a relatively complete set of returns is available for 2011 to 2012, 2012 to 2013, 2013 to 2014, and 2014 to 2015. The following chart shows the average annual net change in tax filers and exemptions per 1,000 returns and per 1,000 exemptions over these four years for Minnesota, other Midwest states in aggregate, and Wisconsin. U.S. net migration is omitted from this chart, since it is almost exactly zero.

From 2011-2015, Minnesota’s average annual net out-migration of tax filers per 1,000 returns is 1.66, 43.1 percent below that of other Midwest states and 28.3 percent below that of Wisconsin—the state that is perhaps the most similar to Minnesota in terms of climate, demography, and economy. Minnesota’s average annual net out-migration of exemptions per 1,000 is 1.28, 43.5 percent below the average for other Midwest states and 17.5 percent below that of Wisconsin. Even if we exclude Midwest states in the heart of the rust belt—Indiana, Michigan, and Ohio—from the rest of the region, Minnesota’s rates of out-migration of tax filers and exemptions remain equally far below that of the remaining Midwest states.

If we focus on the more recent migration data from 2014 to 2015, Minnesota’s net rate of out-migration for tax filers (1.60 per 1,000) and exemptions (1.09 per 1,000) has remained fairly constant relative to that of the remaining Midwest states, but has improved relative to that of Wisconsin. Wisconsin’s net rate of out-migration from 2014 to 2015 for tax filers (2.41 per 1,000) and exemptions (1.53 per 1,000) increased significantly relative to Minnesota’s rates (and relative to Wisconsin’s rates over the preceding three years). The absence of an uptick in Minnesota net out-migration from 2014 to 2015 runs contrary to speculation that 2013 state tax increases would stimulate large scale tax flight from Minnesota.

Using older IRS SOI data,† Minnesota Illustrated examines migration data extending back to 1991. The report emphasizes the fact that in each year since 2002, Minnesota has experienced a net out-migration of exemptions reported on tax returns. However, the beginning of the period of net out-migration roughly coincides with the beginning of Minnesota’s “no new tax” era, during which real per capita state and local government expenditures dropped significantly both in absolute terms and relative to the U.S. average.

These facts do not prove that Minnesota’s conservative fiscal policy during the first part of the 21st century is the cause of Minnesota’s net out-migration, but they are sufficient to cast serious doubt upon conservative speculation that Minnesota’s net out-migration is driven by state fiscal policy and tax climate.

While Minnesota Illustrated examines the net migration of exemptions reported on tax returns, it does not cover the most fundamental demographic information of all: population growth. From 2000 to 2016, Minnesota has experienced population growth of 11.9 percent, more than double the Midwest growth of 5.3 percent and only modestly below the national growth of 14.5 percent.

While Minnesota’s population growth has been modestly below the national average during the 21st century, over the most recent period for which data is available (2015 to 2106), the percentage growth in Minnesota’s population (0.7 percent) has matched the national average, while the population of Wisconsin and Midwest states in aggregate has been relatively flat (0.2 percent growth).

The fact that Minnesota has been more successful than the rest of the region in terms of resisting the out-migration of tax filers and in maintaining relatively significant population growth is largely overlooked in the pages of Minnesota Illustrated. The next installment in this series will examine that report’s claims in regard to taxes.

 

*Based on the U.S. Census Bureau definition of Midwest states, which include Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin.

IRS-ROI data for years prior to 2011-2012 are based on a less complete set tax returns than are data for 2011-2012 and subsequent years.