Building a better business climate in Minnesota

The new legislative session has started, and even though we’ve got a $6.2 billion deficit to address, there are already calls for tax cuts for business.  It’s seemingly taken as a matter of widespread agreement that Minnesota has an “unfriendly” environment for business.  But is that really the case?  Crunching the numbers indicates that the conventional wisdom on this issue may not in fact be correct.

A recent study by the Council on State Taxation (a collection of 600 large corporations) and the accounting firm Ernst & Young compared states by calculating the ratio of actual tax dollars paid by businesses to states, counties, and cities versus the GSP (Gross State Product) of private sector companies.

This is a different measure used than in most analyses, which merely rank states based on their corporate income tax rate.  Minnesota has a fairly high base corporate income tax rate, and as such doesn’t fare well in these rankings.  As we all know from our personal income taxes, though, the actual tax that we end up paying doesn’t match what bracket we are in because of the various exemptions, deductions, and credits that are in our tax law.  Well, the same things apply to business taxes as well.

When you look at the actual amount of business taxes paid as a ratio the economic activity in the state, Minnesota fares significantly better.  In fact, Minnesota’s ratio of 4.3%, is tied for 16th in the nation, ahead of such purported tax havens as Arizona (4.8%, tied for 26th) or Florida (5.3%, 37th).  Minnesota even fares better than Nevada, South Dakota, and Texas (all at 4.9%, tied for 28th).

Yes, you heard that right.  Minnesota businesses pay less in taxes as a percentage of total economic activity than businesses in Nevada, South Dakota, and Texas.  What’s the Sioux Falls radio guy going to say now?

So the answer to getting Minnesota’s economy back on track isn’t cutting business taxes.  We know that.  All we have to do is look at the experience of the last decade.  Since 2000, we have had five rounds of federal tax cuts and created about 2 million private sector jobs nationwide over that time.  In the 1990s, we increased taxes and created 20 million private sector jobs.  The answer to encouraging economic growth is much larger and diverse than merely cutting taxes.

So what are those answers?  Well, we know what they are.  They are time-tested and proven.  Even with our deficit, we need to protect and promote the societal infrastructure that has given Minnesota such strong economic performance over the last three decades and which has begun to decay over that time.

It’s physical infrastructure (roads and bridges, the electrical grid), it’s education (from early childhood through our colleges and universities) and it’s health care (protecting children and the poor).  As Jeff Rosenberg at points out, for the cost of the corporate tax cuts, we could make investments that would almost certainly do more to add jobs and create long-term prosperity.


3 Responses to “Building a better business climate in Minnesota”

  1. A call to cut corporate taxes? Sen. Ortman should cut individuals’ tax first, her position is the representation of people. Not legal entities The bottom line of Sen. Ortman’s bill is not to correct a problem but to add to the ever growing lack of responsibility to her constituents. It should not matter if they are Republican or not, they are people with voting rights and souls.
    Text of S.F. 27 (Ortman’s bill):


  1. More of the Same « A Little Tour in Yellow - January 31, 2011

    […] Building a better business climate in Minnesota ( […]

  2. Ernie Leidiger, Annotated | Brick City Blog - July 2, 2011

    […] to the Dakotas and Wisconsin. Don’t you hear their ads on the radio whooing them to move. Minnesota’s business tax climate is actually better than the national average. As it is, the Governor has all his money in South Dakota. Do you think he understands what […]

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