Earlier this month, Alpha News reported on the latest U.S. Census Bureau data for the Twin Cities metro area. While there were a few bright points in the report, they were overshadowed by one glaring issue: Minnesota’s negative domestic migration.
Minnesota struggles to hang onto residents. It loses more residents to other states than it gains. Residents leave for states like North Dakota, South Dakota, Texas, and Florida.
What do all those states have in common? Lower taxes. Three of the four states Minnesotans are likely to relocate to have no income tax at all.
Minnesotans are overtaxed, and people are flooding out of state because of it.
Minnesota has the third-highest top income tax rate in the country, only behind California and Oregon. Not even New York out-taxes Minnesota. Minnesota’s lowest income tax bracket is 5.35 percent, which is higher than the highest tax bracket in 23 states. Minnesota taxes its lowest earners at a higher rate than almost half the states tax their highest earners.
And yet some people are applauding Minnesota’s tax structure. A recent op-ed in the Star Tribune praised Minnesota for its tax fairness. According to the editorial board, the top tier of Minnesotans were not paying their fair share of taxes, and DFL Gov. Mark Dayton, who keeps his inherited fortune in a tax haven in South Dakota, saved the day by raising taxes on the wealthiest residents.
In 2013, Dayton signed into law a 9.85 percent tax bracket for the highest earners in the state. The Tax Incidence Study now says Minnesotans, across all tax brackets, pay on average about 12 percent of their income in state and local taxes. How fair is that?
Despite how some try to spin the data, tax fairness does not seem to be resonating with Minnesotans looking to keep more of their hard earned dollars. Since 2010, the Minneapolis-St. Paul metro area has a net loss of 8,015 residents to other states.
In comparison, Texas, one of the states with no state income tax, has seen huge domestic migration since the 2010 census. Minneapolis-St. Paul peer cities Austin and Dallas-Fort Worth have huge positive domestic migration rates, gaining over 192,000 and 304,000 people respectively since the 2010 Census.
Florida also has no state income tax, and is gaining thousands of residents from other states annually. Since 2010, over half of the population increases in the Tampa area came from domestic migration. The Orlando area also benefited from large amounts of domestic migration.
It is not that people are eager to leave the Midwest. North Dakota and South Dakota have a positive domestic migration rate, drawing residents from Minnesota and other states across the country. North Dakota’s highest income tax bracket is 2.9 percent. South Dakota has no state income tax.
It is also not just retirement age people who are leaving the state in search of better weather. Studies show domestic migration occurs across all age groups in Minnesota.
Taxes are driving the wage earners out of the state. In other words, the more people that leave, the less taxable income there is available to fund the government. A tax migration study by Center of the American Experiment found that Minnesota lost $1 billion in net household income in 2013-2014.
On the other end of the spectrum, Minnesota is able to make up for the loss in domestic migration through consistent international migration which keeps the total migration numbers positive. Since 2010, the Twin Cities region has gained over 65,000 foreign-born residents.
People who are making money, and therefore contributing to the state, are heading for states with better tax policies. Meanwhile, Minnesota welcomes in refugees by the thousands. While the influx of refugees helps the migration balance for Minnesota, it does nothing for the state’s bottom line.
A significant portion of international migration to Minnesota comes from refugees seeking the state’s generous resettlement policies. According to the Star Tribune, Minnesota spent $180 million in 2015 on public assistance programs for refugees.
Ultimately, it is not just the upfront cost of the refugees that is problematic. The real problem comes when Minnesota drives out wage earners who ultimately generate revenue for the government, while welcoming in more people who live off the government.
Minnesota will not have a booming economy if there are less and less taxpayers to fund the system.
Hard working Minnesotans are smart. They realize they are being overtaxed. They realize their effort would be better rewarded somewhere else. The problem will only get worse as more people take a stand and say they have had enough.
The proof is in the data. Minnesota cannot afford the negative effects of high taxes. An economy is only as strong as those willing to take part in it. It is time to stop the bleeding.