A tale of two states

[Scooter]

2 Years After Raising Taxes on the Rich, Here's the Hellscape Minnesota Has Become

Since 2011, Minnesota has been doing quite well for itself. The state has created more than 170,000 jobs, according to the Huffington Post. Its unemployment rate stands at 3.6% — the fifth-lowest in the country, and far below the nationwide rate of 5.7% — and the state government boasts a budget surplus of $1 billion. Forbes considers Minnesota one of the top 10 in the country for business.

Given that Minnesota's governor is a well-connected millionaire whose family controls the Target fortune, one could be forgiven for thinking this was the result of embracing the corporate world. But in fact, over the past four years, the state has undergone a series of policy reforms that most of the corporate world decries: It has imposed higher taxes on the wealthy and raised the minimum wage.

When each of these progressive policies was initially proposed, Minnesota Republicans made dire predictions about their effects on the economy, and argued that bleeding-heart concerns about economic fairness would stifle growth. Despite all the warnings, Minnesota's economy hasn't tanked. Instead, it's sailing with greater force than it has in years.

How Minnesota did it: The progressive economic policies in the North Star State came into being after the election of Democratic Gov. Mark Dayton. In 2010, Dayton surprised many political observers in Minnesota when he managed to win the governor's mansion, the first Democrat to seize it in more than two decades. His political career up until that point was mainly defined by failure, despite the fact that he was a billionaire heir with countless resources.

Dayton's margin of victory wasn't impressive, but he was eventually able to make a dramatic mark on the direction of the state's public policies. He instituted a wide variety of progressive policies that rendered him the "most liberal governor in the country in terms of his willingness to raise taxes and to spend," University of Minnesota political scientist Larry Jacobs told Mother Jones.

In the last few years, Minnesota took a number of measures to make its taxation and wages more progressive. Mother Jones reports that Dayton targeted the top 2% with a tax raise — "one of the largest hikes in state history." Corporate taxes increased. The state income tax on the highest earners increased to 9.85% in 2013, making it the fourth highest in the nation, according to the Tax Foundation.

The state's minimum wage is set to increase to $9.50 by 2016, and last year Dayton signed a sweeping bill strengthening protections for women in the workplace and guaranteeing equal pay. Other progressive measures have included a tuition freeze at public universities and two-year colleges, increased spending on public education and increased unionization, according to Mother Jones.

The critics who feared Dayton's campaign to have the top 2% pay their fair share would ruin growth and cause business interests to flee appear to have been crying wolf. Minnesota's labor market is healthy. Minnesota was ranked one of the fastest-growing economies in the country by the Bureau of Economic Analysis in 2013. Gallup found economic confidence in the state to be the highest in the nation.

A tale of two states: As Minnesota has enjoyed economic success, observers have often compared the state's situation to that of its neighbor Wisconsin. Republican Scott Walker also won the governor's mansion in Wisconsin in 2010, but pursued a deeply conservative agenda for managing the economy. He made huge spending cuts to vital services ranging from education to health care. He reduced taxes on the wealthy, and got rid of tax credits for low-wage earners.

By a number of measures, Wisconsin hasn't fared as well as Minnesota. As the Milwaukee Sentinel Journal reports, Wisconsin's job growth has been among the worst in the region, and income growth is one of the worst in the country. It has a higher unemployment rate than Minnesota. And the budget is in bad shape:

Our transportation budget has a $750 million hole in it, our health care budget is $760 million in the red, and that's all on top of a $1.8 billion general budget deficit. Add it up and Walker has essentially taken a balanced budget and turned it into a deficit nearly as large as the one created by the worst economic disaster since the Great Depression.

Now, no political leader can take full credit or blame for the economic health of the state they oversee — the economy is shaped by a number of structural factors and historic trends that any one politician has little control over. Consider, for example, that Minnesota's economy was outperforming Wisconsin by a number of measures beginning earlier than the recession.

But here's what we can say: Dayton's progressive vision for Minnesota has not ruined the economy, and has likely helped it. Walker's conservative vision has clearly not ushered in the free market paradise he envisioned. And it's noteworthy that since the Great Recession and the implementation of their divergent philosophies, Minnesota's economy has pulled further ahead of Wisconsin in several areas.

What's next? While Walker spends time running for president and making ill-advised comparisons between fighting organized labor and battling the Islamic State group, Dayton is busy thinking about how to invest in the ordinary people who make up Minnesota's economy.

Dayton began his second term in January and is already gunning to take advantage of his budget surplus. His new budget plan aims to boost spending on education from kindergarten through college, and he's angling to invest in public transit, paid sick time for workers and child care tax credits for middle-class families, according to Mother Jones. History suggests the investments will pay off.

No wonder why the smart money abandoned Walker's presidential campaign so early - nothing like cold hard facts to burst the bubble of the conservative version of economic utopia that Walker was preaching.

[wesw]

you lost me at mother jones.....

[Scooter]

I apologize for not linking to the article I have quoted, which links extensively to objective source material. Perhaps your opinion of the reliability of the data presented may change after reviewing it.

Or not.

[rubato]

Clinton raised taxes on the rich and everything got better. Deficits turned into surpluses. Incomes rose for all 5 5ths. Poverty fell.


yrs,
rubato

[Joe Guy]

I skimmed the article to find out how they defined 'Rich' and couldn't find it.

Did I miss it?

If it's there, just tell me that it is and I'll find it. I wouldn't want to put anyone out....

[Scooter]

It says

Dayton targeted the top 2% with a tax raise

[Joe Guy]

Thank you.

I missed it because I was looking for a dollar figure.

Oops...

[Lord Jim]

Clinton raised taxes on the rich and everything got better. Deficits turned into surpluses. Incomes rose for all 5 5ths. Poverty fell.


yrs,
rubato

[Long Run]

And, of course, there are a whole basket full of factors that go into the mix beyond marginal tax rates. As noted, the biggest variable was the strength of the recovery in that part of the country, and the sectors that had the best impact. Off hand, Minnesota is big in healthcare, banks, and retail. Each of those has rebounded strongly from the recession, and that momentum will overwhelm any government policy.

No one would sensibly say that modestly raising marginal tax rates or the minimum wage would immediately cause negative effects or even reduce the rate of growth in the short run. The overall evidence seems clear, that, on average, those type of changes will gradually erode an economy if there are better options. Corporations don't pack up and move overnight. Rich people, the same. It takes a prolonged time period to measure the results,as there can be substantial advantages in a certain location and it can take a lot negative policies over a long period of time to see the impact (see California now or the U.S. circa 1970s).

For another take on the liberal Mother Jones view, here is a conservative rejoinder: http://fee.org/freeman/minnesota-mythbusting/ The key argument that cuts through the MJ article is that the policy changes became effective well after Minnesota began its strong recovery from the recession; that is, while the changes were adopted in 2011, none were effective until 2013, 2014, 2015 and later. The changes were indeed minor, and the statistics are cherry-picked. Minnesota ranks last among Midwestern states for job growth in 2013-14 after some of these policies actually went into effect, if you want to be selective about statistics.

[Scooter]

No one would sensibly say that modestly raising marginal tax rates or the minimum wage would immediately cause negative effects or even reduce the rate of growth in the short run.

And yet Minnesota Republicans were predicting precisely that doomsday scenario. Good on you to admit that they were not speaking sensibly.

[Scooter]

Interesting tidbit from that "rebuttal":

And Dayton’s tax hike, which increased the top marginal tax rate by 2 percent? That didn’t occur until 2013, and it only increased state revenues by $1.1 billion (or 0.35% of Minnesota GDP).

emphasis mine

So that tax increase created Minnesota's $1 billion budgetary surplus, which Dayton intends to use to fund education, public transit, and tax credits for working families. I'm no economic genius, but I'd call passing that increase a pretty damn good day's work.