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MN2020 - Minnesota vs. Wisconsin: Who’s Winning the Border Battle?
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Minnesota vs. Wisconsin: Who’s Winning the Border Battle?

December 09, 2013 By Jeff Van Wychen, Fellow and Director of Tax Policy & Analysis

In college football, the Wisconsin Badgers have dominated the Golden Gophers throughout recent history, capturing Paul Bunyan’s axe ten consecutive years. It’s good to know, however, that when it comes to what really matters—including job, income, and GDP growth—Minnesota is ahead of our rivals across the river. In a recent New York Times article, U of M Professor Lawrence Jacobs attributes this outcome to Minnesota’s “modern progressivism,” in contrast to Wisconsin’s “anti-tax dogma.”

In many ways, Minnesota and Wisconsin are similar. Both states have similar climates, economies that rely heavily on agriculture, and an ethnic stock drawn heavily from Scandinavian and north central European nations. These similarities make these two states ideal candidates for a “natural experiment” between the conservative path followed by Wisconsin under Governor Scott Walker versus the progressive direction taken in Minnesota under Governor Mark Dayton, both of whom were elected in 2010. Because of the similarities between the two states, differences in economic performance can be plausibly attributed to contrasting fiscal policies pursued under each state’s executive leadership.*

And the differences between the two states in terms of fiscal policy are indeed stark. As noted by Jacobs, Minnesota increased state taxes by $2.1 billion in the FY 2014-15 biennium (although part of this state tax increase will be used to reduce local property taxes), generated primarily from the wealthiest households that enjoy the lowest state and local effective tax rates. These resources contributed to increased investments in “human capital”—specifically early childhood, K-12, and higher education. Minnesota expanded Medicaid to cover an additional 35,000 low-income people and took advantage of the federal Affordable Care Act by establishing a state exchange—known as MNsure—which will further reduce Minnesota’s relatively low uninsured rate.

Meanwhile, Wisconsin enacted “sharp reductions in taxes and spending,” including a reduction in the progressive state income tax, which in turn led to a 15 percent cut in state funding for K-12 education. Furthermore, “When Mr. Walker refused to establish a state health insurance exchange or to expand Medicaid, even though the federal government covered all costs for three years and most costs after that, ideology trumped pragmatism. The uninsured and the ill bear the burden.”

As for the relative economic performance of the two states, Jacobs notes that “Minnesota is the fifth fastest growing state economy, with private-sector job growth exceeding pre-recession levels. Forbes rates Minnesota as the eighth best state for business.” Meanwhile, “Three years into Mr. Walker’s term, Wisconsin lags behind Minnesota in job creation and economic growth. As a candidate, Mr. Walker promised to produce 250,000 private-sector jobs in his first term, but a year before the next election that number is less than 90,000. Wisconsin ranks 34th for job growth.”

Minnesota Tea Partiers have attributed Minnesota’s strong economic performance in recent years to the “no new tax” policies pursued under Governor Tim Pawlenty. However, Minnesota’s performance relative to other states deteriorated over the course of Pawlenty’s eight year tenure. A 2010 Minnesota 2020 report found that since 2002:

  • Minnesota's performance relative to the national average in terms of unemployment rates and employment growth declined.
  • A smaller—but still significant—deterioration occurred among three income and pay measures.
  • On all three education indicators—pupil-teacher ratio, students at or above "basic" level in math and reading, and per capita state and local spending on education—Minnesota declined relative to other states.
  • Minnesota's position in terms of road miles in poor or mediocre condition fell sharply relative to the rest of the nation; the miles of roads in poor or mediocre condition in Minnesota more than doubled from 2002 to 2007.
  • On the other four factors examined in this report (homeownership rates, health insurance coverage, bridge deficiency percentage, and poverty rates) there was no evidence of a statistically significant decline in Minnesota's performance relative to other states. Nor was there evidence of improvement.

A more recent Minnesota 2020 article has noted that since 2002, Minnesota has lagged behind the national average in terms of GDP, employment, personal income, and median household income growth. As Jacobs notes, “Minnesota’s job growth was subpar during Mr. Pawlenty’s eight-year tenure and recovered only under Mr. Dayton.”

Jacobs’ NYT article concludes with the following observation:

“Evidence and common sense should matter more in our overheated political debates. The lesson from the upper Midwest is that rigid anti-tax dogma fails to deliver a convincing optimistic vision that widens economic opportunity and security. The excesses of liberalism may lurk, but Minnesota is building a modern progressivism that plows a hopeful path.”

Let the Cheeseheads keep that stupid axe. We’ll settle for an economy and a state that works.

 

*The relative merits of the respective fiscal courses pursued by Walker and Dayton was the focus of a recent forum sponsored by the Humphrey School of Public Affairs that featured the Wisconsin and Minnesota revenue commissioners. Minnesota 2020’s take on this event was summarized in an October 9 Hindsight post.

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5 Comments:

  • Tim Gieseke says:

    December 16, 2013 at 10:28 am

    Yes, good points.  I would consider a greater length of history when analyzing this ‘natural experiment’.  These economic ships, as a whole, cannot turn on a term.  When I try to justify my opinion, I usually try to prove myself wrong prior to attempting to share how I proved myself right.  What does your opposing opinion look like?  Much too serious stuff to be based on bias.

  • Dana says:

    December 16, 2013 at 11:58 am

    Having been a MN resident for over 40 years I moved to WI shortly after Walker was elected. The move had nothing to do with that but I anticipated a bit of reduction in my tax load given all the hype. Turns out that was all it was, hype. For a middle class taxpayer like myself the total tax “load” is larger than it was in MN. And as far as I can see I get a LOT less “bang for my buck” in WI than I did in MN.  I have been a small business owner for most of my life so my “take” on taxes may be different than the average citizen. You cannot grow a business without investing in it’s infrastructure.  State govt.s are LARGE businesses that create the infrastructure upon which its’ citizens depend to live and prosper. But as with any investment it must be done wisely to be effective. It appears to me that overall MN state govt has been much more pragmatic about how it invests the taxes it collects from its’ taxpayers than WI has been.  We did not get that with Walkers approach. Maybe next time.

  • Yeun Chou says:

    December 16, 2013 at 1:24 pm

    Minnesota demonstrates the practice, “You give more and you will receive more back.”. Walker of Wisconsin is just the Old Scrooge.

  • Phil Gulstad says:

    December 16, 2013 at 5:06 pm

    Great points, but my wife and I are a little greedy. As long-time Gopher football season ticket holders, we’d also enjoy a few axes with our taxes.

    • Jeff Van Wychen says:

      December 20, 2013 at 7:09 pm

      Phil: You win my award for the most humorous insight of 2013.  It comes with no prize, but with plenty of laughs among the folks here at MN 2020!