By Rex Sinquefield, August 9, 2012
Mitt Romney’s next chess move is his vice-presidential pick from among a number of Governors, Senators, and former Cabinet leaders. Among the Midwestern contenders is former Minnesota Governor Tim Pawlenty. While Pawlenty has a record of holding the line on state government spending, his home state still remains behind the growth curve, with relatively high marginal tax rates.
No matter what Tampa plans may be in store for “T-Paw” during the 2012 Republican National Convention, he is not the only Minnesotan heading down to Florida. Since 1995, the Internal Revenue Service taxpayer files show that more than 37,000 residents from the Land of Lakes have moved more than $3.2 billion in adjusted gross income (AGI) there too. Florida, which has no personal income tax, ranks second on Minnesota’s state out-migration list.
Perhaps more alarming is what type of individuals are leaving Minnesota for the Sun Belt. The average AGI of a person who left Minnesota for the Gator State between 1995 and 2010 was a whopping $89,070 per transfer. In other words, Minnesota is losing wealthy residents – those paying the most taxes and those most likely to own businesses and create jobs.
To Pawlenty’s credit as Governor, he actively opposed tax bracket or rate increases to the state income tax code. Yet, according to the Tax Foundation, Minnesota ranks 45th in overall business climate index, with a top income tax rate of 7.85% and a corporate income tax rate of 9.8%. Relatively high marginal tax rates on corporate and personal income help explain why Minnesota lost $4.2 billion in net adjusted gross income (net AGI) between 1995 and 2010.
Most economists would argue that essential state government services should be funded through the imposition of a broad-base tax. However, Minnesota government has consistently carved out categorical fees, assessments, and gaming taxes, directly away from general fund use. Unfortunately, Governor Pawlenty deployed such tactics for the Minnesota Twins’ stadium, and now his successor has done the same by making taxpayers fund the Vikings’ new stadium.
As a result, there are places in Minnesota that now impose a mega-sales tax (more than 13%) on eating, drinking, and live entertainment. If such expansions were a long-term infrastructure investment to drive others into the state, using consumption taxes might have made more sense. Capturing any consumer tax revenue for sports stadiums, at the expense of public safety or education, seems shortsighted for any state to adopt.
In America’s Midwest, the new state debate is about how to reduce or eliminate net tax burdens on personal income. Taxpayers know all too well that the season for one-time gimmicks and federal stimulus dollars is over. Since most states have constitutional duties to prevent deficit spending with a balanced budget, much of the responsibility to reign in wasteful spending falls on America’s governors. If the land of Pawlenty is to become the land of plenty, it is time for state leaders to consider real tax relief from corporate and personal taxes.