Minnesota’s Risky Experiment

Give Minnesota politicians credit for consistency. Their policies have Minnesota ranked #39 in both Economic Freedom of North America and Freedom in the 50 states.

Those are ratings for overall economic freedom.

When looking specifically at fiscal policy, the state is in even worse shape.

The Tax Foundation calculates that Minnesota is only #45 in the State Business Tax Climate Index.

And the state’s governor, Tim Walz, received a failing grade in the Fiscal Policy Report Card on America’s Governors.

All things considered, Minnesota is not in good shape. That being said, it’s always possible to go downhill.

That will probably happen because the left this year is using Minnesota as a laboratory for statist economic policies.

Here’s some right-of-center analysis from the editors of National Review.

Minnesota has long been liberal, but with a frequently divided government that kept its radicalism tethered. …2022 was hardly a sweeping mandate. …The state senate went from a 34–33 Republican majority to a 34–33 DFL majority. On that slim basis, the DFL set out to turn the state overnight into a frozen California. The legislature, with the eager connivance of Governor Tim Walz, voted routinely in partisan lockstep to enact a wish list of left-wing radicalism. …a massive budget spree, blowing in a single session Minnesota’s $17.5 billion surplus, most of it on spending and the rest on one-time “tax rebates” that will do nothing to improve the state’s tax climate going forward. The state’s $72 billion budget increases spending by 38 percent over 2022 levels, plus $2.6 billion in additional infrastructure spending that is heavily financed by debt. Pricey new programs were created, such as free public college (subject to a means test), universal free breakfasts and lunches for all students, up to twelve weeks of state-financed family and medical leave, expanded free-housing vouchers, and free menstrual products in schools. …Taxes on most Minnesotans will be going up to pay for all this. Gas taxes will be hiked by as much as five cents a gallon over the next four years. Sales taxes will increase by one percentage point. A payroll tax will be added to finance the family- and medical-leave program.

Not everyone is unhappy about these developments.

Here’s a left-of-center perspective from E.J.Dionne of the Washington Post. He cites many of the same policies, but he argues that the state is moving in the right direction.

The avalanche of progressive legislation that the state’s two-vote Democratic majority in the Minnesota House and one-vote advantage in the state Senate have enacted this year is a wonder to behold. …former president Barack Obama tweeted recently: “If you need a reminder that elections have consequences, check out what’s happening in Minnesota.” …while a two-year budget surplus of $17.5 billion set expectations “very high” for what could be done, $10 billion of it was “one-time money,” meaning that programs had to be funded and revenue raised for the long term. …What makes Minnesota’s experience this year unusual? State Democratic leaders said in interviews that as soon as they learned in November that they would have their first trifecta in a decade — meaning control of both chambers and the governorship — they decided they would not hold back to calculate the politics of every move.

So who is right, National Review of Mr. Dionne?

Regular readers won’t be surprised to learn that I agree that it is a mistake to turn Minnesota into a “frozen California.”

There are plenty of states with better tax policy, including neighbors with no income tax (South Dakota) or low-rate flat taxes (Iowa), so I expect we will see an increase in the rate of out-migration.

And if the productive people want warm weather as well, there are even more zero-tax options (Texas, Florida, etc) and flat-tax options (Arizona, North Carolina, etc).

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Government Failure in Minneapolis

One might think that the most poorly governed city is a place such as San Francisco, Detroit, New York City, and Chicago.

Or Seattle, if we just count recent history.

But let’s not overlook Minneapolis. I wrote two months ago about that city’s hostility to capitalism, but the problems go well beyond run-of-the-mill government greed.

An article in the Star Tribune reveals that the city not only failed to protect property when riots broke out, it then demanded owners of business pre-pay taxes before giving them a permit to clean up the damage caused by government failure.

In Minneapolis, on a desolate lot where Don Blyly’s bookstore stood before being destroyed in the May riots, two men finish their cigarettes and then walk through a dangerous landscape filled with slippery debris and sharp objects. The city won’t let Blyly haul away his wreckage without a permit… Minneapolis requires owners to prepay the second half of their 2020 property taxes in order to obtain a demolition permit. …“Minneapolis has not been particularly friendly toward business for some time,” said Blyly, who prepaid $8,847 in taxes last week but still hasn’t received his demolition permit. …On average, the owners of properties destroyed or significantly damaged owe $25,000 in taxes for the second half of 2020, which come due in October, according to a Star Tribune review of county property records. “When it first hit my desk, I was flabbergasted that this was a requirement,” said developer David Wellington, whose family owns several properties that were destroyed in the riots.

This isn’t adding insult to injury. It’s adding injury to injury.

To make matters worse, the Star Tribune also reported that business owners aren’t allowed to protect themselves by installing metal shutters.

After looters crashed through his floor-to-ceiling windows and stole $1 million worth of booze in May, Chicago-Lake Liquors owner John Wolf wanted to protect himself from a repeat occurrence. Like property owners throughout the world, he wanted to install security shutters on the outside of his building. The investment would not only prevent rioters from entering his store, it would protect his windows — which cost $50,000 to replace. But Wolf ran into a big obstacle: The city of Minneapolis has barred security shutters on building exteriors since 2004. …In a report justifying the rule change, Minneapolis officials argued that external shutters “cause visual blight” and create the impression that an area is “unsafe” and “troublesome.” But in the wake of the riots, when police failed to prevent widespread looting and damage to more than 1,500 businesses in the Twin Cities, property owners said they can no longer count on the city to protect their property. …”I have never felt so vulnerable,” said Brandow, whose shop is two blocks from another car-repair business that was destroyed in the May riots.

The bottom line is that businesses can’t rely on government to protect property, and the government then makes it hard for them to protect themselves.

Give the mistreatment by city politicians, one might expect some businesses to simply give up.

And, according to a report by WCCO, that’s beginning to happen.

Even before…destruction and looting, a number of downtown businesses had been re-thinking their future in the city. WCCO spoke with some of them…about the damage they endured and their futures moving forward. One of those businesses is Dahl Medical Supply, located at 12th and Nicollet. They’ve been downtown for about 12 years. “You feel so hopeless and helpless…,” Lisa Steffes said. That helpless feeling grew throughout Wednesday night, as Steffes watched surveillance video of looters ransacking her store. …other businesses could soon close their doors for good. Chad Laux has run Greenway Chiropractic at 811 LaSalle for 17 years. …Laux says downtown crime has made things worse. “We’ve lost six people in this building already,” Laux said.

To be sure, Minneapolis isn’t at a tipping point. At least not yet.

Minneapolis does rank in the bottom half of Dean Stansel’s U.S. Metropolitan Area Economic Freedom Index, but it’s not in the bottom 10.

As such, there hasn’t been the steady and significant exodus of taxpayers that plagues Chicago, Los Angeles, and New York City.

But all the more reason why a city should be concerned about starting down that path.

Once a city gets a bad reputation, it’s hard to reverse.

P.S. My favorite city is zero-income-tax Monaco. I’m not sure what American city would be at the top of my list, but you’ll notice on the map that most of the cities attracting residents are in states with no income tax.

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Minneapolis vs. Capitalism

I recently speculated whether Seattle should be considered the worst-governed city in the country.

Though there’s lots of competition for that honor from places like San Francisco, Detroit, New York City, and Chicago. And John Stossel makes a compelling case for Minneapolis in this new video.

As I’ve previously noted, statist policies are never a good idea, but they’re especially foolish when adopted by local or state governments.

Why? Because it’s relatively easy for productive people to escape bad policy by moving across borders.

And that happens. A lot.

Yet the folks in Minnesota – at least if the anti-capitalism comments in the video are any indication – must not care whether the geese with the golden eggs fly away.

To learn more, let’s take a look at the Washington Post story referenced in the Stossel video.

Authored by Tracy Jan, it looks at all the big-government policies imposed by local and state government.

The Twin Cities…and…progressive policies… Taxes, for decades, have been redistributed from wealthy suburbs to poorer communities to combat inequality — an effort bolstered in recent years by raising state income taxes on the rich. The result: more money for schools, affordable housing and social services in lower-income neighborhoods. …Minnesota’s progressive reputation was cemented nearly five decades ago… Gov. Wendell Anderson…worked with the Republican-controlled legislature to pass…a redistributive tax policy introduced in 1971 that required wealthy communities in the Twin Cities region to share their commercial property tax revenue with the poorest areas. Income and sales tax revenue from rich suburbs across the state also was shared with less-affluent cities and rural communities to fund schools, police and housing. …It would be the beginning of a suite of policies that over subsequent decades increased investments in housing, schools and small businesses in disadvantaged communities. …more state aid poured into poor communities in 2013, when then-Gov. Mark Dayton raised taxes on the wealthiest Minnesotans. The Democrat…campaigned to “Tax the Rich!” — saying everyone should pay their “fair share” to keep society “functional.” The income tax rate, already fairly high for top income earners compared with other states, increased from 7.85 percent to 9.85 percent for individuals making more than $150,000.

I fully agree with Stossel that the story’s headline is hopelessly biased, though that’s usually the fault of editors rather than reporters.

But let’s set that aside and focus on the details in the report.

What conclusions are warranted? The reporter can’t resist making a silly assertion that growth isn’t part of the solution (she’s obviously not familiar with Census Bureau data).

Those enduring disparities…highlight the flawed premise…that economic prosperity is a remedy for racial inequality.

Though she does acknowledge that the mess in Minneapolis poses a challenge for the left’s argument that big government is the answer.

…progressive policies ha[ve] not translated into economic equality. Instead, the wealth gap between Minneapolis’s largely white population and the city’s black residents has deepened, producing some of the nation’s widest racial disparities in income, employment and homeownership. …The shortcomings have given rise to an urgent debate about where Minneapolis went wrong and what measures would bring better results. …The typical black family in the Twin Cities earned $39,851 in 2017, lower than the median income for African Americans nationally… A quarter of black households lived in poverty, five times the poverty rate for white households. …the outcome for black residents in Minneapolis and St. Paul…undercuts the liberal argument that spending on progressive policies can create systemic change. …Black residents…are worse off today by some measures than they were 20 and 30 years ago, even as the fortunes of their white counterparts held steady or improved, according to census data. …Despite a slew of programs to help first-time home buyers, only a quarter of black residents in the Twin Cities own their homes…much lower than the national black homeownership rate of 42 percent.

I’ll make four points in response to this story.

First, there is no substitute for growth, and – as Stossel observed in the video, but as Ms. Tan doesn’t seem to appreciate – we shouldn’t care if some groups get rich faster than other groups.

Second, stronger growth not only explains why average living standards in the United States are higher than in other nations, but also why the average low-income person in America does better than the average middle class person in many other countries.

Third, the only effective and successful way to achieve long-run growth is with free markets and small government, but Minnesota doesn’t fare well in rankings of economic liberty (see here, here, and here) and Minneapolis scores poorly when cities are ranked.

Fourth, the redistribution programs from both local and state governments doubtlessly have trapped many poor residents in dependency, especially since there are high implicit marginal tax rates if they seek self-sufficiency and financial independence.

The bottom line is that Minneapolis has poor governance, as does the entire state of Minnesota, but the politicians will have to try harder to achieve worst-in-nation status.

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Which States Are Most Drunk on Beer Taxes?

Two years ago, I shared a map looking at how heavily wine was taxed in different states.

What is showed was that you shouldn’t sip your Chardonnay or guzzle your Merlot in Kentucky. Unless, of course, you wanted to give politicians a lot more money to spend (or you slip across the border like Michael J. Rodrigues when buying booze).

Now the good people at the Tax Foundation have a related map. It shows which states have the highest and lowest taxes on beer.

Kentucky is still a high-tax state, but the “winner” of the beer tax contest is Tennessee.

At the risk of drawing too many conclusions, it does appear that southeastern states generally have high taxes on booze. Along with Alaska.

Maybe that’s a “Bible Belt” phenomenon. Though I’m somewhat forgiving of Tennessee for high excise taxes since the Volunteer State at least avoids the huge mistake of imposing an income tax on the wages and salaries of residents. No wonder it’s been growing faster than neighboring states.

Returning to the main topic, the Tax Foundation explains, taxes amount to a big share of the final price.

The Beer Institute points out that “taxes are the single most expensive ingredient in beer, costing more than labor and raw materials combined.” They cite an economic analysis that found “if all the taxes levied on the production, distribution, and retailing of beer are added up, they amount to more than 40% of the retail price.”

P.S. Since we’re looking at states, I can’t resist sharing bad news from one state and good news from another state.

We’ll start with some grim news from Minnesota. I’ve already commented on the insanity of using the State Department’s refugee program to subsidize terrorists.

Well, the Daily Caller reports that terrorists also have learned to bilk other programs to finance that hate of the modern world.

Two Somali-American men living in Minnesota are facing fraud charges — in addition to terrorism charges — after they allegedly used federal student loan money to purchase airline tickets to get them to Syria in order to join ISIS. …

This doesn’t quite entitle them to join the Moocher Hall of Fame, but it should outrage taxpayers anyhow.

Our good news come  from California.

J.D. Tuccille of Reason speculates that gun control has basically become impossible in the Golden State because there are simply too many guns.

California is a state where officials pride themselves on tightening the screws on gun owners. …But it’s a losing battle. Even in a political environment where villainizing guns and gun owners is a winning tactic, the ranks of the same are beyond officials’ grasp, and growing. Last year, almost one million firearms were sold in the state…it’s a good bet that California’s gun owners, and their guns, are here to stay.

Here’s a chart he including showing gun sales.

And J.D. reminds us that these are just the legal sales. As illustrated by the amusing t-shirt at the bottom of this post, there are doubtlessly lots of undocumented weapons in the state.

The bottom line is that future gun control efforts in California will probably run into the same problems that have thwarted the schemes of despicable politicians in Connecticut. Three cheers for the Americans who disobey bad law!

And since it’s Memorial Day weekend, it’s a good time to be thankful the all the folks in the military who fought to preserve our freedoms. Including the freedom to engage in civil disobedience when politicians try to trample our rights.

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