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Minnesota taxes, spending, and Rudy Perpich

During this year’s election campaign for governor of Minnesota, the candidates have proposed various positions about taxes: expand the sales tax, no new taxes, increase the income tax, and cut the corporate tax. Information about Minnesota’s taxes should help us with our decision about who the next governor should be.

Minnesota’s state and local taxes totaled $4,727 per person for fiscal year 2008 (the most recent data available) and this ranked Minnesota 13th highest in the nation, according to the nonpartisan Minnesota Taxpayers Association (MTA). A similar measure is total state and local taxes per $1,000 of income, in which Minnesotans pay $113 per $1,000 of income. This ranked Minnesota 21st highest in the nation in 2008.

Both of these measures show that Minnesota’s ranking has been falling, meaning Minnesotans are paying relatively less in taxes compared to other states. In 1999, a decade prior, Minnesota ranked 6th in state and local taxes per person at $3,599 and 5th per $1,000 of personal income at $123.

Another useful measure is the total state and local revenues per $1,000 of personal income, better known as the Cost of Government. According to Minnesota Management and Budget, Minnesotans paid 15 cents of every dollar earned to state and local government in 2009. A decade prior, we paid nearly 18 cents. Again, our burden has been dropping.

A shift in taxation by percent of income
Assessing who pays the most in taxes also provides useful information. The Minnesota Department of Revenue does a tax incidence study every two years. In 2006, the study found that the lowest decile (under $9,783 of income) of Minnesota’s population paid 24 percent of their income in total state and local taxes, while the highest decile (over $124,000) paid 10 percent of their income.

In 1996, the lowest decile (under $6,817 of income) paid 18 percent of its income, while the highest decile (over $78,618) paid 12 percent. The incidence of Minnesota taxes has shifted from the higher deciles to the lower deciles.

Do lower taxes help or hurt Minnesota? Gubernatorial candidate Tom Emmer argues that it helps Minnesota. He argues lower taxes will stimulate economic growth. Candidate Mark Dayton argues lower taxes will hurt Minnesota. He argues lower taxes mean lower expenditures which will hurt the economic growth. Candidate Tom Horner splits the difference.

Spending has been declining
There is a problem, though, reviewing taxes without reviewing spending. How much in taxes does Minnesota want to support how much in expenditures? Minnesota has been dropping in its spending compared to other states.

In 2008, Minnesota ranked 18th highest per person or 36th per $1,000 of income on K-12 education spending compared to other states, according to the MTA. In 1999, our ranking was 8th and 18th  — meaning Minnesota was spending more than other states on education.

Jay Kiedrowski
Jay Kiedrowski

In higher education, Minnesota ranked 25th and 33rd in 2008. In 1999, our rankings were 20th and 31st. States like Iowa, Wisconsin, North Dakota, Kentucky and Mississippi are spending relatively more than Minnesota.

Does lower spending help or hurt Minnesota? Gubernatorial candidate Emmer argues that it doesn’t. He argues we don’t need some of the services we have, college students should pay more tuition, we can get more efficient, and higher property taxes are a local issue.

Candidate Dayton argues that lower spending will hurt Minnesota. He argues lower expenditures will hurt economic growth because Minnesota will be less livable and investments in education are critical for our future. Candidate Horner argues similar to Dayton and less like Emmer.

How would Rudy vote?
How former Gov. Rudy Perpich would vote in this election has been raised in this election. I served for Governor Rudy for five years on tax and spending issues. I know that if he were alive today that he would be strongly supporting Dayton.

Governor Rudy had a vision for Minnesota and stood for jobs, education, tax fairness, and progress. He would not have excluded tax increases from balancing the budget discussions. He would not let education funding fall compared to other states. And, he would advocate a fair tax system.

Governor Rudy might not agree with Dayton on everything, but he would be voting for him next week.

Jay Kiedrowski is a Senior Fellow at the Humphrey School of Public Affairs at the University of Minnesota. He served Gov. Perpich as commissioner of finance.

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Comments (2)

  1. Submitted by Richard Schulze on 10/28/2010 - 10:15 am.

    I agree with Mr. Kiedrowski. It is very difficult to contract your way to growth.

    So long as Republicans refuse to consider tax increases this will be a problem. We need to reduce the current level of expenditures and increase revenues. Most important, we need to come to grips with health care which will be the biggest driver of the states expenses.

    Kiedrowski talks about the future of LGA in an interview on MPR this morning.

  2. Submitted by myles spicer on 10/28/2010 - 10:32 am.

    An excellent and needed analysis.

    I have never seen incontrovertable evidence that high taxes inhibit economic growth; or low taxes are the panacea for business growth and business location.

    If taxes were the driving force for economic vitality, Mississippi would be a Mecca, and S. Dak would have numerous Fortune 500 companies.

    With our “reputed” high taxes, we have 21 Fortune500 companies; S. Dak with zero corp taxes has…none!

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