Minnesota Can Do Better

Minnesota has long been a leader among the states in the areas of economic freedom, prosperity and overall well-being. But as the country has emerged from the economic upheaval of the last decade, one thing is clear: instead of leading the nation, Minnesota is falling behind.

The state that once pioneered charter schools in the 1990s is seeing a third of its third-grade students fall behind in reading[1], and despite millions of dollars in additional spending, our achievement gap is the worst in the nation[2]. All our neighboring states – North and South Dakota, Wisconsin and Iowa – now have lower unemployment rates than Minnesota’s[3]. While the national average GDP is looking increasingly optimistic, Minnesota’s contracted in the first quarter of 2017[4].

Our state is ranked 46th on the Small Business Entrepreneurship Policy Index[5], 31st in job growth[6] and our income tax collections per-person are the 6th highest nationally[7]. It’s no surprise that thousands of households are leaving the state, taking with them an estimated $980 million in 2014[8].

How did we get here?

Over the course of Gov. Dayton’s two terms in office, spending has increased by around 50 percent, yet our state continues to fall behind[9]. Government officials continue to pursue an outdated tax-and-spend strategy to encourage growth. It’s not working.

Thankfully, there are reforms that can move Minnesota forward, and we can learn from other states that have stepped up to fill the leadership role Minnesota once held.

Learn more facts by reading the issue summaries below and visiting our blog for regular updates!

Reforming the Tax Code:

There are few things more stressful than filing taxes. Unfortunately, Minnesota’s tax code ranks 46th in the nation[10]. Whether it is the 9.8 percent corporate income tax, average sales tax of 7.3 percent or a 28.6 cents per gallon gas tax, Minnesotans fork over a far greater share of their paycheck for taxes than people in other states[11].

These onerous taxes may explain why Minnesota’s private sector job growth is ranked 31st in the nation. While the entire country saw a 2.6 percent increase in average private sector job growth in 2015, Minnesota’s rate sat at a minuscule 1.6 percent[12].

To increase opportunities for Minnesotans, our state should learn from North Carolina. Between 2013 and 2016, North Carolina cut taxes by $4.7 billion by slashing the personal income tax, the corporate tax rate and eliminating the death tax and special exemptions[13]. After these cuts, the state’s GDP grew by 13.4 percent compared to the national average of 9.9 percent, and labor-force growth was five times stronger than the national average in 2015. This growth, combined with responsible government spending, has yielded revenue surpluses in the state budget year after year.

The results in North Carolina are proof that common-sense tax policies work to increase freedom and spur economic growth.

There are few things more stressful than filing taxes. Unfortunately, Minnesota’s tax code ranks 46th in the nation[10]. Whether it is the 9.8 percent corporate income tax, average sales tax of 7.3 percent or a 28.6 cents per gallon gas tax, Minnesotans fork over a far greater share of their paycheck for taxes than people in other states[11].

These onerous taxes may explain why Minnesota’s private sector job growth is ranked 31st in the nation. While the entire country saw a 2.6 percent increase in average private sector job growth in 2015, Minnesota’s rate sat at a minuscule 1.6 percent[12].

To increase opportunities for Minnesotans, our state should learn from North Carolina. Between 2013 and 2016, North Carolina cut taxes by $4.7 billion by slashing the personal income tax, the corporate tax rate and eliminating the death tax and special exemptions[13]. After these cuts, the state’s GDP grew by 13.4 percent compared to the national average of 9.9 percent, and labor-force growth was five times stronger than the national average in 2015. This growth, combined with responsible government spending, has yielded revenue surpluses in the state budget year after year.

The results in North Carolina are proof that common-sense tax policies work to increase freedom and spur economic growth.

School Choice:

School choice reforms have allowed disadvantaged children to access a quality education. Minnesota was once a leader in enacting these reforms. Unfortunately, our state has fallen behind, while other states like Arizona reap the benefits.

Despite decreased funding during the Great Recession, Arizona led the nation in academic gains from 2009 to 2015 because it expanded charter schools[14]. Arizona charter schools improved three to four times as much as all Arizona schools in fourth grade math and reading scores, and saved taxpayers $1,300 per student[15].

Minnesota should take a cue from other states and provide students with more options. Throwing more money at the system does not work [16]. Our most vulnerable students deserve a quality education, and school choice delivers.

School choice reforms have allowed disadvantaged children to access a quality education. Minnesota was once a leader in enacting these reforms. Unfortunately, our state has fallen behind, while other states like Arizona reap the benefits.

Despite decreased funding during the Great Recession, Arizona led the nation in academic gains from 2009 to 2015 because it expanded charter schools[14]. Arizona charter schools improved three to four times as much as all Arizona schools in fourth grade math and reading scores, and saved taxpayers $1,300 per student[15].

Minnesota should take a cue from other states and provide students with more options. Throwing more money at the system does not work [16]. Our most vulnerable students deserve a quality education, and school choice delivers.

Labor Reforms:

No worker should be forced to fork over their paycheck to a union in order to keep their job. States that prohibit this kind of coercion have a brighter economic outlook. Data from the U.S. Bureau of Labor Statistics reveals that right-to-work states enjoyed twice the job growth rate of non-right-to work states between 1990 and 2014[17]. Right-to-work states from 2001 to 2011 added 1.7 million jobs, while forced-union states lost 2 million jobs[18].

Common-sense right-to-work laws are already yielding success in other states. In Kentucky, the most recent state to pass right-to-work legislation, Warren County received 47 inquiries for economic development projects in the six months after the law passed[19]. They only received 32 requests in all of 2014.

When workers are free to keep more of their money rather than being forced to pay unions, the economy does better. Furthermore, right-to-work forces unions to serve their members to stay relevant. It’s no wonder that from 2005-2015, overall union membership increased in right-to-work states while falling in non-right-to-work states[20].

No worker should be forced to fork over their paycheck to a union in order to keep their job. States that prohibit this kind of coercion have a brighter economic outlook. Data from the U.S. Bureau of Labor Statistics reveals that right-to-work states enjoyed twice the job growth rate of non-right-to work states between 1990 and 2014[17]. Right-to-work states from 2001 to 2011 added 1.7 million jobs, while forced-union states lost 2 million jobs[18].

Common-sense right-to-work laws are already yielding success in other states. In Kentucky, the most recent state to pass right-to-work legislation, Warren County received 47 inquiries for economic development projects in the six months after the law passed[19]. They only received 32 requests in all of 2014.

When workers are free to keep more of their money rather than being forced to pay unions, the economy does better. Furthermore, right-to-work forces unions to serve their members to stay relevant. It’s no wonder that from 2005-2015, overall union membership increased in right-to-work states while falling in non-right-to-work states[20].

Corporate Welfare:

Most people today are unaware that Minnesota’s state government gives out taxpayer money to Hollywood filmmakers, professional sports stadiums, and last session even tried to give handouts to shrimp farmers. Why is that? These well-connected corporations argue that the government should give them money so they can create jobs and help the economy.

Handouts for big businesses, known as corporate welfare, are wrong and unfair to hard-working taxpayers. Not only do they fail to spur organic job growth, they ignore the economic reality that the government had to take that money from someone to dish it out.

Florida has seen tremendous success by getting rid of these special incentives. This year, the Sunshine State got rid of a slew of special handouts and used that money to cut taxes by over $600 million[21]. This is exactly how government should work: cutting handouts for the well-connected so taxpayers can keep their own money. Businesses should get ahead based on merit and service, not their political clout.

Most people today are unaware that Minnesota’s state government gives out taxpayer money to Hollywood filmmakers, professional sports stadiums, and last session even tried to give handouts to shrimp farmers. Why is that? These well-connected corporations argue that the government should give them money so they can create jobs and help the economy.

Handouts for big businesses, known as corporate welfare, are wrong and unfair to hard-working taxpayers. Not only do they fail to spur organic job growth, they ignore the economic reality that the government had to take that money from someone to dish it out.

Florida has seen tremendous success by getting rid of these special incentives. This year, the Sunshine State got rid of a slew of special handouts and used that money to cut taxes by over $600 million[21]. This is exactly how government should work: cutting handouts for the well-connected so taxpayers can keep their own money. Businesses should get ahead based on merit and service, not their political clout.

Regulatory Reform:

If your electricity bills are taking up more of your family budget, blame regulations. Unnecessary regulations kill jobs and increase the cost-of-living by imposing burdens on businesses. For example, Minnesota’s electricity costs growth-rate tripled from 1.03 percent to 3.59 percent after the Renewable Energy Mandate started forcing utility companies to sell more renewable energy[22]. Regulations are also holding back key economic development projects like the PolyMet copper-nickel mine, which would bring in about $10 billion over 20 years to our state[23].

Wisconsin’s recently passed REINS Act will ensure elected officials, not unelected bureaucrats, decide on major regulations that impact the economy. These reforms are necessary to hold government agencies accountable and keep regulations in check. The following policy options would also help responsibly reform the regulatory process in Minnesota, lower energy costs and increase job opportunities:

 

  • Time limits for environmental review and grant permits;
  • Definitive answers at the end of the review process;
  • Legal reforms to limit the ability of environmental groups to sue or use the legal system to unnecessarily delay projects; and
  • Regulatory reform should require substantial new regulations to be approved by the legislature.

If your electricity bills are taking up more of your family budget, blame regulations. Unnecessary regulations kill jobs and increase the cost-of-living by imposing burdens on businesses. For example, Minnesota’s electricity costs growth-rate tripled from 1.03 percent to 3.59 percent after the Renewable Energy Mandate started forcing utility companies to sell more renewable energy[22]. Regulations are also holding back key economic development projects like the PolyMet copper-nickel mine, which would bring in about $10 billion over 20 years to our state[23].

Wisconsin’s recently passed REINS Act will ensure elected officials, not unelected bureaucrats, decide on major regulations that impact the economy. These reforms are necessary to hold government agencies accountable and keep regulations in check. The following policy options would also help responsibly reform the regulatory process in Minnesota, lower energy costs and increase job opportunities:

 

  • Time limits for environmental review and grant permits;
  • Definitive answers at the end of the review process;
  • Legal reforms to limit the ability of environmental groups to sue or use the legal system to unnecessarily delay projects; and
  • Regulatory reform should require substantial new regulations to be approved by the legislature.

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[1] http://kstp.com/news/minnesota-third-grade-students-falling-behind-in-reading/4394963/
[2] https://www.mprnews.org/story/2016/03/07/graduation-gap-by-the-numbers
[3] https://www.bea.gov/newsreleases/regional/gdp_state/qgsp_newsrelease.htm
[4] https://www.bls.gov/news.release/pdf/laus.pdf
[5] http://sbecouncil.org/2017/02/08/sbe-council-ranks-the-50-states-in-small-business-policy-index-2017/
[6] https://www.jec.senate.gov/public/_cache/files/845d797b-bf0c-43e0-9bca-7f9bb9596b30/jec-state-economic-snapshots---2015-year-in-review-combined-.pdf
[7] https://taxfoundation.org/2017-state-business-tax-climate-index/
[8] http://www.startribune.com/minnesota-where-the-economy-is-not-even-average/390041541/
[9] https://mn.gov/mmb/assets/spending-history-1960-to-present-general-fund-and-all-funds_tcm1059-269631.pdf
[10] https://files.taxfoundation.org/20170418101758/Tax-Foundation-TFD-2017.pdf
[11] https://taxfoundation.org/2017-state-business-tax-climate-index/
[12] https://www.jec.senate.gov/public/_cache/files/845d797b-bf0c-43e0-9bca-7f9bb9596b30/jec-state-economic-snapshots---2015-year-in-review-combined-.pdf
[13] http://www.nationalreview.com/article/443016/conservatives-tax-cut-success-north-carolina
[14] https://jaypgreene.com/2017/05/01/the-origin-of-arizonas-nation-leading-naep-gains/
[15] http://www.azed.gov/superintendent/files/2016/01/safr-2015-volume-i.pdf
[16] https://object.cato.org/sites/cato.org/files/pubs/pdf/pa746_2.pdf
[17] http://www.heritage.org/research/reports/2014/12/right-to-work-laws-myth-vs-fact
[18] https://nrtwc.org/right-to-work-means-mo-jobs/
[19] http://www.investors.com/politics/commentary/in-kentucky-workers-win-with-right-to-work-as-they-do-elsewhere/
[20] http://www.washingtonexaminer.com/right-to-work-strengthens-unions/article/2590251
[21] http://www.orlandosentinel.com/opinion/os-ed-watchdog-florida-taxes-20170707-story.html
[22] https://www.eia.gov/tools/models/timeseries.cfm
[23] http://www.lic.wisc.edu/glifwc/Polymet/SDEIS/references/BBER%202012.pdf