Wisconsin vs. Minnesota – Game On

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It may not be a frigid Sunday in January. There may not be screaming crowds dressed in purple or green. But two rival titans are on the field, and like the Minnesota Vikings and Green Bay Packers on a Super Bowl Sunday, they each have an agenda. They are both there to win. But in this case, we are not talking about a football game. This competition is about what bold steps each will take in a battle to entice the most wealth migration into their respective states. This competition centers on reversing budget shortfalls, while creating the most favorable tax environment for people and businesses.

Between 1995 through 2010, $373.63 million of Minnesota’s total loss of $4.3 billion in adjusted gross income (AGI) went directly to the state of Wisconsin. To break it down even further, St. Croix County in Wisconsin was the recipient of $426 million AGI from the four adjacent Minnesota counties of Washington, Ramsey, Dakota, and Hennepin. These counties all fall within the Minneapolis-St. Paul Metropolitan Statistical Area (MSA). On the national stage, neither Wisconsin nor Minnesota are stellar performers by a long shot. In the areas of state-local tax burden and taxes per capita, during this same 1995-to-2010 timeframe, they ranked as the 5th and 7th overall worst, respectively.

The most pressing game plan for Minnesota Governor Mark Dayton is to run a pattern that he thinks will stop his state’s fiscal bleeding and bring about a positive budgetary result. Wisconsin’s Governor Scott Walker has a similar goal, but the direction each leader is taking to accomplish this is starkly different.

Governor Dayton’s plan to balance his state budget centers upon increasing tax rates on the top 2% of Minnesota’s wage earners. The current individual income tax rate in Minnesota already stands at 7.85%, coupled with a 9.8 percent corporate income tax. In addition, Dayton scrapped an earlier proposal to reduce the state’s sales tax from 6.9 percent to 5.5 percent, and eliminated his proposed rebates of $500 to each Minnesota homeowner. His new proposal would increase cigarette taxes, and impose a so-called “snowbird” tax that would require people who live in the state for slightly less than six months each year to pay Minnesota taxes.

Governor Scott Walker is taking another approach. His plan centers on reducing the state’s entitlement costs, and cutting income taxes by $343 million, or 2.2% overall. Leaving no doubt in anyone’s mind about what his ultimate plan is, the governor recently said, “Our middle class tax cut is a down payment on my goal of reducing the tax burden in our state every year I’m in office. I want to cut taxes over and over and over again until we are leading the country in economic recovery.”

The question now is: Which plan will work the best? I think you need only look as far as the states of Florida and Texas. Florida and Texas are two of nine states with zero state income tax, and both possess an overall favorable tax environment. As a result, Texas gained $22 billion in AGI, while Florida picked up a whopping $86.4 billion! Also, in a 2012 listing of the best states for business, conducted by Chief, Texas and Florida ranked first and second. I think it is pretty clear that Governor Walker is coaching the winning team.