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Testimony on CAE Income Migration Report

by | Mar 25, 2016 | Other

The following is an excerpt from the testimony of North Star’s Tax & Fiscal Policy fellow, Jeff Van Wychen, regarding the Center for the American Experiment’s recent report alleging massive income migration as a result of Minnesota’s tax climate. The testimony was given on March 24 before the Minnesota House Tax Committee. For a more complete critique of this report, see the March 10 North Star Article, No Evidence Taxes are Driving People Out.

Thank you for the opportunity to testify on the Center’s income migration report. I concur with previous testimony regard the measurement problems with the report, although my testimony will focus on the report’s tendency to attribute the alleged income migration to Minnesota’s tax climate.

The report purports to show a $7.6 billion net income migration [from Minnesota] during the period from 1992 to 2014. Even if that finding were reliable, it is far from clear that that migration occurred as a result of taxes. Most of this migration occurred during the period from 2002 to 2013. During that period, state fiscal management could be fairly described as fiscally conservative. For example, real per capita state and local own-source revenue in Minnesota fell by four percent and real per capita expenditures fell by eleven percent. In both instances, the rate of decline was double the national average. Only five states had a greater real per capita spending decline over this period. So most of the income migration occurred while state finances were quite austere.

As for the 2013 tax act causing the flight of working age people from Minnesota, we should note that a close examination of the Revenue Department’s incidence analysis of the 2013 tax act indicates that it likely resulted in a tax reduction for the majority of middle income Minnesotans. A tax reduction does not cause tax flight.

The report makes much of the fact that income migration allegedly grew by $247 million from 2013 to 2014 and attributes that increase to the 2013 tax act. But in the prior year—before passage of the 2013 tax act—net migration grew by almost as much—$207 million. If we believe the report’s data, there’s a trend of growing income migration in recent years that does not coincide with changes in state tax policy, but which does coincide with the trend of an increasing number of baby boomers reaching retirement age.

This conclusion is further supported by the fact that most of the income is migrating to warm weather states. For example, based on the report’s own data, ten times more revenue went to Florida than to South Dakota, even though South Dakota is closer and has a slightly lower “state and local tax burden” according to the report. It seems quite likely that weather, not tax climate, is the cause of the disparity [in alleged Minnesota net income migration] between these two states.

Since passage of the 2013 tax act, Minnesota has surpassed adjacent states in terms of job growth, personal income growth, and GDP growth. These trends are a strong indicator that the 2013 tax act has not caused massive tax flight or income migration.

Furthermore, since passage of the 2013 tax act, state tax collections have exceeded [2013 end-of-session] projections by at least one-half billion dollars in each fiscal year. It’s hard to see how revenue collections could have consistently surpassed expectations by such a comfortable margin if there had been such large scale tax flight.

In short, data internal to the report as well as data from other sources do not support the premise that the alleged tax flight was the result of Minnesota’s tax climate in general or the 2013 tax act in particular.

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