So do these changes really kick-start an economy? Here’s an analysis from the “Being Classically Liberal” Facebook page:
1. Minnesota had ALREADY been experiencing a decent economy prior to the tax increases. As USA today explains, “Minnesota had one of the nation’s lowest unemployment rates in 2012 …and one of its highest GDP growth rates, at 3.5%.” [a] The tax increases came the following year, in 2013. [b] Minnesota continued to maintain its rank of having one of the best unemployment rates, and any further decrease in its unemployment rate simply mirrored national trends. One cannot reasonably conclude, then, that the 2013 tax increases had “caused” the good economy which was already in place before said tax increases even existed.
2. Understand that this controversy is over TWO tax increases; One which increased income taxes on individuals earning above $150,000 a year or couples earning above $250,000. [b] [c] The other which increased the state’s excise tax on cigarette sales by 130%. [d] It’s rather disingenuous for progressives to point to the these two tax increases and declare ideological victory since jobs hadn’t vanished. For one, they’re conflating conerns. Concerns over businesses fleeing to neighboring states are not based on income taxes but more so on a state’s business environment. And in that regard, it’s relevant to point out two key facts:
a. Business taxes have actually been CUT since 2013. [e] This is something progressives don’t seem to be acknowledging.
b. Once analyzed in a 2014 study, the cigarette tax increase has, as predicted, been quite detrimental to sales. [d] We will list the pertinent details below.
THE CIGARETTE TAX:
“In 2013 the Minnesota Legislature passed a 130% increase in the cigarette excise tax and also increased the tax on other tobacco products from 70% of the wholesale price to 95% of the wholesale price.” In 2014, when a study was conducted to measure the effects of this new policy, the following conclusions were found: [d]
• 1,100 jobs were estimated to have been lost or eliminated by 2014 as a result.
• Tobacco sales declined 50% in Minnesota stores along the border.
• Dramatic sales increases of tobacco products occurred in all four bordering states, indicating consumers had merely shifted to out of state purchases.
• By 2014, $38 million of lost sales in non-tobacco products also occurred as an indirect result.
• Nearly a quarter of all cigarettes consumed in Minnesota are now estimated to be purchased in other states.
As you can see, Minnesota may in fact be doing well, but this is due to other variables and not due to an increase in income taxes or cigarette taxes. One must consider the many other relevant variables at play. For instance, Minnesota borders water which automatically benefits ANY region, as it makes it part of a commercial trade route. This alters the conditions that might otherwise push businesses to conduct commerce elsewhere. Consider this. Part of Minnesota’s border is water (beneficial to business), another part is Canada (not appealing to most companies seeking to stay in the US), and the rest of its border are 4 neighboring states, where 3 of which are landlocked. This gives Minnesota an upper hand relative to other states, which is entirely relevant when one’s concern is commerce. Furthermore, Minnesota is home to a major natural resource and produces 75% of the country’s iron ore. [f] The iron-ore industry can’t just pick up and leave. Lastly, there has emerged a rather extensive list of tax CUTS, credits, or simplifications, all potentially offsetting the detriments of the aforementioned two tax increases. [e] They are as follows:
• $230 million in reduced taxes, as well as a simplification of the tax code, for Middle Class Minnesotans.
• The elimination of the “marriage penalty” tax, saving more than 650,000 married couples an average of $115 per year.
• Over 16,000 additional middle class families will qualify for the Working Family Tax Credit.
• Tax Cuts for Parents. More than 25,000 families who qualify for child care tax credits will see an average increase in their tax credit of $74 per year.
• Tax Cuts for Students. More than 285,000 recent college graduates could save up to $190 per year by deducting their student loan interest. Another 40,000 current college students and parents will receive a tuition deduction of $140 per year, on average.
• Tax Cuts and simplification of the tax code for Small Employers as well as an elimination of a requirement to maintain separate records for federal taxes.
• Tax cuts for seniors, teachers, and homeowners.
• A reduction in business sales taxes by $232 million.
• All three business-to-business taxes were repealed.
• The sales tax on repair and maintenance of electronic, farm, and commercial equipment has been repealed.
• The warehousing sales tax was repealed.
• Sales tax on telecommunications equipment has been repealed.
• $3 million in tax CREDITS for “Innovation and Jobs” and specifically “fuel innovation” has been set aside.
• Another $3 million in Tax Credits for startup businesses and entrepreneurs.
• Simplification of the Estate Tax, raising the exemption from $1 million to $2 million.
• Elimination of the Gift Tax; a reduction of $43 million.
• Furthermore, in May of 2014, an additional $103 million in tax cuts for homeowners, renters and farmers was agreed to. [g]
To point to all of this and declare, “Tax increases created jobs!” is MORE than a bit questionable. When you already have a decent economy, and firms see tax cuts for businesses and consumers on the horizon, it shouldn’t be a surprise that they’d likely remain in the state. Minnesota is doing well for many reasons, but their 2013 income tax increase on the top 2% of earners and their 2013 cigarette tax increase are NOT why. Add to all of the Minnesota tax cuts the fact that their government has begun shrinking in size per recent jobs numbers showing the government shed 4,200 jobs in December of 2014 alone [h] and it’s a wonder why Progressives keep proudly waiving this example around.
The problem is, there are a multitude of variables in any economy. In order to claim that any given outcome is due only to one or two changes, you’d really need to have two Minnesotas, one where the changes happened, and one where they didn’t, but are otherwise identical.
This doesn’t exist anywhere in the world.