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To the Point! is edited by John Marty, a Minnesota state senator. 

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Taxes and Business Climate
Minnesota Health Plan
Information and Resources
by Senator John Marty
June 15, 2006

Governor Pawlenty recently bragged that Minnesota's overall tax ranking among states has fallen. Such boasting is not surprising; the debate over taxes invariably invokes comments from politicians like Pawlenty about how taxes hurt the economy and stifle economic growth

Anti-tax politicians might concede that government expenditures increase the quality of life, but to them, taxes have by definition, a negative impact on a state's "business climate". They argue that businesses and individuals migrate to states with lower taxes, giving low tax states the economic growth. As a result, a state will always be better off economically if it lowers taxes.

If this prevailing wisdom is correct, low tax states would have the strongest economies, and their citizens, the highest after-tax incomes.

But the facts don't bear this out. Look at the high tax states. Using 2002 and 2004 U.S. Census and Department of Commerce data, New York state had the highest taxes per capita. Yet New Yorkers had the sixth highest income per person, after taxes were paid.

New York is not an anomaly. Contrary to the expectation, people in the high tax states aren't suffering. This is noteworthy: All five of the highest tax states in 2002 were ranked among the top ten in per capita income even after taxes are factored in. This is not what business leaders and certain politicians want you to hear.

In contrast, residents in low tax states don't do very well. Residents in none of the five lowest tax states come even close to the national average of per capital income. Four of the five lowest tax states actually rank in the bottom ten, in after-tax income.

People in high tax states prosper significantly more than people in low tax states -- the opposite of what Pawlenty and other politicians suggest. Why? Is it just chance? Or could it be that sometimes society can accomplish more -- and do so more efficiently -- by working together, than individuals can do on their own.

Public investments in health care, education, environment, transportation, and public safety provide the healthy, well educated workers that enable businesses to thrive. People and the businesses where they work, and in which they invest, prosper when society makes those investments and addresses problems such as crime and chemical dependency up front. All of this requires an engaged citizenry, and yes, some taxes. But this may be the best investment any community can make in its future.

The news of Minnesota's falling tax ranking that Pawlenty touted, would be very welcome if it means that Minnesota citizens will be more prosperous and have a better quality of life. But when that change in tax ranking has occurred because the the Pawlenty administration has made cuts in funding for environment and natural resources, because they have been borrowing money for road construction, and because health care is becoming less affordable and college tuition has been skyrocketing, it is far from an indication that Minnesota is becoming a more prosperous state.

For the Governor and certain business leaders, the low taxes of Mississippi and Alabama might be a model to emulate. But many Minnesotans have a vision of Minnesota where we prosper because we have made wise choices; where we take care of our environment, meet the health care needs of all families, and are a leader in educational opportunity.

We can work to minimize taxes by investing in prevention, by avoiding large corporate subsidies, and by making government more efficient. But let's not be so eager to celebrate lower taxes when they are taking away from the good things that past Minnesota leaders have left for us.


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Permission to quote or reprint material from To the Point! is granted if the author is credited.
Copyright 1999-2014, John Marty