OPINION: Taxes, trends erode
Wednesday, October 30, 2013 10:24 AM
The summer after Gov. Wendy Anderson held up the northern pike, one of us (Pearlstein) was 25 and getting ready to move from upstate New York to the Twin Cities to work at the University of Minnesota.
Beyond not knowing a northern (or even a walleye) from an Ed Muskie, the problem was that my new job needed to be kept quiet for a while, meaning I had to pore over that issue of Time secretly so as not to draw attention to my nearby departure. I was just as furtive on Saturday nights when Mary Tyler Moore came on.
A lot of things enthused me about the move, especially my sense that Minneapolis and St. Paul comprised the heart of one of the most distinctive metropolitan areas in the United States. I saw the Twin Cities as singular, much as I viewed New Orleans and Salt Lake City as attractively idiosyncratic.
In our case, it was mostly because of Minnesota's still-palpable and wonderfully rich Scandinavian roots, regularly starring Ole and Lena on Boone and Erickson. But it also was because, just as Time reported, Minnesota really did seem to work better than most other states.
Or at the very least, it was an exceptionally pleasant place to live, winter notwithstanding.
And on many counts, Minnesota remains exceptional. The other one of us (Nelson) was barely 25 days old - 28 days actually - when the Time cover story ran, which means he needs to rely on data rather than experience to compare where we are today.
On the plus side, for instance, Minnesota's property crime rate actually is down 24 percent from 1973. Per capita personal income, moreover, is up relative to the rest of country.
The state's waters and air are exponentially cleaner, and the United Health Foundation now rates Minnesota the healthiest state for seniors and fifth healthiest overall.
That said, the distance between Minnesota and the rest of the nation on various other measures has been shrinking since the '70s. For instance, in 1973 the highest statewide violent crime rate in the nation was 3.2 times higher than Minnesota's. It was down to 1.8 times higher in 2012.
On too many fronts, especially when it comes to family fragmentation and educational failure, we've been regressing to national means in both senses of the term.
All of which is to say that even while Minnesota continues to lead and remains a very pleasant place to live, our distinctiveness is eroding.
To regain our more decided distinctiveness, many argue we should follow Gov. Anderson's example: Raise taxes, and spend those tax dollars on all sorts of good things that presumably would improve Minnesota's future. But problems with this approach are serious and multiple.
First, the approach assumes that much of what ails us has to do with money. But to the extent Minnesota has fallen back - even if just in relative terms - such declines, in truth, have had more to do with demographic and cultural changes than with budgets adopted and laws passed.
And, by the way, we're already spending more than "Spendy Wendy" - 90 percent more, even after adjusting for population and inflation.
Second, the tax-our-way-to-prosperity solution ignores fundamental differences between today and 1973 - transformations that make it far harder for Minnesotans to compete under the burden of high taxes.
We've already highlighted the shrinking distances between Minnesota and the rest of the nation on measures of well-being. As those distances shrink, Minnesota's competitive advantage likewise shrinks, making other competitive factors such as taxes that much more important.
All of which means, with Minnesota now competing on global stages far more than 40 years ago, and with investments and labor moving easily to lower-tax destinations, we must be acutely skeptical about any and all tax increases as well as the ability of government to direct our economy.
Instead, we'd all do better by unleashing the creative power of commerce.
Finally, people may be surprised to know that the effective tax rate on many Minnesotans in the 1970s was much lower than today. In 1973, for example, the income tax rate on top earners was 15 percent, but due to deductions in law at the time, the effective marginal tax rate actually was only 4.31 percent.
That lower effective rate let Minnesota have high income tax rates but without creating huge incentives for top earners to flee and without creating barriers for such men and women to move here in the first place.
None of this, quite obviously, is the case anymore.
Mitch Pearlstein is founder and president and Peter Nelson is director of public policy at the Center of the American Experiment, a nonpartisan, tax-exempt, public policy and educational institution committed to building a culture of prosperity for Minnesota and the nation.