If there's one thing conservatives and liberals in Minnesota agree about — and there may not be many more than that — it's that this state supports quite a bit of government.
In progressive eyes, this is a source of strength. Good schools and other quality public services are a key reason, they often say, that Minnesota is prosperous and vibrant. They see still better designed and better funded government programs as what's needed to close troubling racial disparities.
To conservatives, Minnesota's oversized public sector is often a drag on the state's job growth and competitiveness, ever threatening to drive businesses and talent to depart.
Still, both factions share the sense that Minnesota governments are vigorous — and especially that this state does more than its share to support the rest of the country, frequently showing up on lists of "donor states" whose residents pay more in federal taxes than Washington, D.C., spends in the state.
Conservatives conclude from this, of course, that Washington should spend less across the board. Liberals conclude, of course, that the feds should spend even more — especially to assist generous "blue" governments like Minnesota's, lessening the net "subsidy" they are sending to economically stagnant, tightfisted "red" Republican states like, say, Mississippi or Kansas.
An old saying goes: "It's better to know nothing than to know what ain't so." And it might be preferable for Minnesota's warring political tribes to agree about nothing than to share the same self-serving oversimplification.
Not quite a year ago, I wrote in this space about a curious and intriguing research paper published by the Niskanen Center. In "Rich State, Poor State: The case for reforming federal grants," Joshua T. McCabe, social science dean of Endicott College in Massachusetts, set out to refute what he called "one of the enduring myths of American political discourse."
He meant the belief "that many states in struggling regions have mistakenly pursued a 'low-tax, low-service' growth strategy while thriving regions have wisely pursued a 'high-tax, high-service' strategy."
When the resources state governments actually have available are carefully compared — McCabe uses a calculation called "Total Taxable Revenue" — he says it turns out that some stereotypically stingy "red" states like Louisiana and Alabama tax their residents more heavily than do rich and enlightened "blue" states like McCabe's own Massachusetts. Yet the threadbare states still can't afford adequate public services for their poorer populations.
The federal government should indeed do more redistribution, McCabe argues — from rich (mostly progressive) states to poor (mostly conservative) ones.
Perhaps recoiling from McCabe's proposal could be a new position for Minnesota conservatives and liberals to agree on. But first, let's pause to notice that our state's own fiscal-policy think tank, the Minnesota Center for Fiscal Excellence, is out this month with its annual "How Does Minnesota Compare?" report (based on 2018 data, the latest available).
And when examined in light of McCabe's analysis, the center's fine work may throw additional doubt on the self-satisfaction of Minnesota and other rich states.
To be clear, the center does not focus on comparing the "fiscal effort" of states in the way McCabe did. But it does, like McCabe, seek to develop better measures of the tax and spending choices of policymakers than are usually employed in state-by-state rankings.
Instead of the crude "per capita" or "personal income" benchmarks that are commonly cited, the center calculates what it calls "cash income" — basically the dollars taxpayers in each state can actually tap to support public services. It includes, for example, capital gains but excludes employer contributions to Social Security.
On the spending side, the center adjusts for varying price levels in different states, then compares spending "per unit" (per household for many programs, but per pupil in education, per lower-income resident in human services, per 1,000 highway miles in transportation).
The results tell a more complicated story about Minnesota's taxing and spending than we usually hear. Combined, state and local governments in Minnesota rank seventh among all states and the District of Columbia in tax revenue as a percentage of "cash income." But they rank below average (31st) in nontax revenues such as fees, fines and charges, and 31st again in revenues transferred from the federal government for Medicaid, welfare and other programs.
The net outcome is that total state and local revenues in Minnesota rank just above average, 22nd, as a portion of cash income. But because the state is well-off, this rather middling effort translates into the 10th-highest per household total government spending, adjusted for price levels.
The most exceptional spending in Minnesota, the center reports, is in the category "Public Welfare," where the state ranks first (behind only D.C.), spending 86% more than average per person at or below 150% of poverty income.
When one compares the self-taxing efforts among states, some results are surprising. Setting aside federal aids (which vary widely, presumably to help equalize economic conditions), Minnesota governments in 2018 extracted 18.96% of "cash income" from the state's economy. That ranked 16th, moderately above average.
But some of the states that tried harder than Minnesota — that taxed their citizens more heavily to support public services — would make nobody's "most progressive" list. They include Mississippi (21%), South Carolina (19.28%), Kansas (19.63%) and especially Iowa (23.03%).
Some red-blue stereotypes are confirmed by these comparisons. New York (22.61%) taxes itself amply; Florida (14.41%) starves public services.
But Louisiana (18.05%) tries harder than Massachusetts (15.41%). Alabama (18.3%) and Nebraska (18.06%) dig deeper than Illinois (16.3%).
The most telling point may be one McCabe emphasized. While Mississippi taxes itself more heavily than Minnesota does, it raises less in price-adjusted public funding per household ($28,277 vs. $29,290) even after compensating federal aids are added in. And Mississippi must serve a far more disadvantaged population, with about twice Minnesota's poverty rate.
Many poor states, in short, aren't following a "low tax, low service" model. They're stuck with a high tax, low service model. It's all they can afford.
Progressives may need to reconsider what true equity in redistribution would mean. (But don't worry, most conservatives still wouldn't like it.)
D.J. Tice is at Doug.Tice@startribune.com.
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March 28, 2021 at 06:01AM
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OPINION EXCHANGE | You know the story on Minnesota's taxing, spending results — don't you? - Minneapolis Star Tribune
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