Minnesotans on the Move to Lower Tax States

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There’s no question that Minnesota’s tax policies directly impact economic growth and opportunity in the state.  There is, however, great debate over whether Minnesota’s current tax policy and the proposals being considered in St. Paul promote or harm economic growth.  Those who favor a higher tax rate argue Minnesota needs more revenue to fund the education and infrastructure necessary to sustain economic growth.  Advocates for lower taxes argue Minnesota needs low rates to make Minnesota an attractive place to invest, work and grow a business.

Like most economic questions, making the direct connection between state tax policy and economic growth is difficult. As William McBride—chief economist at the Tax Foundation—admits, “the economy is sufficiently complex that virtually any theory can find some support in the data.”

Though data can deliver mixed messages, data from the Internal Revenue Service (IRS) point to one clear and worrisome fact: Minnesotans and their wealth are moving to Southern and Western states.  Between 1995 and 2010, an average of $340 million in income—based on 2010 dollars—moved each year from Minnesota to other states—a movement totaling more than $5 billion over 15 years.   The states that on net receive the most Minnesota income tend to be low tax states such as Arizona, Colorado, Florida, Georgia, Nevada, South Dakota, Texas, and Washington.

While people move for all sorts of reasons, a closer look at this data strongly suggests that state tax policies are influencing movement to and from Minnesota.  The implications for current proposals to raise Minnesota tax rates is clear: Higher taxes will likely lead to even more wealth moving to other states.

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