Minnesota, Donor State

This past week we discussed the various avenues of revenue collection at different levels of government, and how to evaluate taxes in terms of equity and adequacy. A perusal of the Minnesota Dept. of Revenue site provides great context. Between 1849 and the Great Depression, the state relied heavily on property taxes to fund public services. During the economic hardship, state coffers dwindled, so individual and corporate income taxes were adopted in 1933. As the chart (below) shows, reliance on property taxes has eased up and now the state enjoys a fairly balanced tax cocktail.

The folks over at D.C.-based TaxFoundation.org – with their mandate of promoting public tax awareness – have charitably amassed a minor treasure trove of interesting information regarding taxes in Minnesota. Their comparative studies reveal the relatively large burden levied against Minnesotans in particular at the State and Federal level. We are, it turns out, a donor state, with $40.6 billion paid to D.C. in 2005 versus $31.1 billion received. This is contrasted with a state like, say, New Mexico, which paid $9.9 billion in the same year and received $20.6 billion. I hear the weather is really nice in Santa Fe.

Apparently I’m not the only one. A glance at Minnesota’s net migration numbers shows that an estimated $31.7 million in taxable income (about 1,000 households) migrated from Minnesota to New Mexico between 2000 and 2008. Of course, "The Land of Enchantment" is not the biggest culprit. Florida netted $1.4 billion, Arizona netted $664 million, and Wisconsin netted $398 million. But it’s not all bad. We took $303 billion from North Dakota. All told, Minnesota saw a net departure of 30,000 households representing a loss of $2.9 billion in income.*

The numbers don’t necessarily imply that people are moving in order to avoid taxes. Minnesota may have a high average tax rate (compounded by a double taxation of business real estate, e.g. all of downtown Minneapolis), but it is important to remember that Minnesota is also very nice. Despite complaints from certain well-funded member organizations.

This does help highlight certain aspects of vertical and horizontal tax systems (dare I say Euclidean tax systems?) which retain revenue stability despite a mobile population. It is intriguing, though, to see federal tax/federal funding imbalances being paralleled by population outflows. The explanation possibly lies with the movements of retirees. More on this subject as time permits.

*All figures adjusted for inflation (in 2009 dollars).