Op/Ed by Minnesota Commissioner of Revenue Myron Frans
Published in the St. Paul Pioneer Press on February 9, 2012 at 5:56 p.m.
By most conventional measures of economic prosperity, Minnesota is outperforming other states. Yet a recent Pioneer Press editorial, promoting the findings of a flawed tax index, says otherwise - hardly the best way to position our state for more growth.
First, the facts: Minnesota has the nation's 10th-highest per-capita personal income, 7th-lowest unemployment rate, 13th-lowest business failure rate, and 8th-lowest poverty rate. We have regained more than 33 percent of jobs lost in the recession (compared with 25 percent nationwide). In 2011, total wages in the state increased four times as much as in the rest of the country.
Despite the economic reality in the state, the Tax Foundation's "State Business Tax Climate Index" claims that Minnesota is bad for business ("Minnesota takes a licking on tax climate," Feb. 7). This is misleading, and biased.
The index is focused only on tax rates, without documenting the real-world effects or considering what Minnesotans and businesses in the state actually pay. For example:
It knocks Minnesota for having a sales tax on manufacturing equipment, but does not acknowledge that taxpayers receive tax credits (refunds) that cover these costs.
It criticizes Minnesota's research and development credit and Angel Investment Credit, even though they are important priorities for businesses in the state.
It is biased against states with multiple income tax brackets, even though there is no evidence that multiple brackets are a detriment to business growth.
The index ignores the benefits provided by public investment when assessing our business climate - yet it is those public investments that draw employers to Minnesota. As state economist Tom Stinson has noted, our taxes have bought something for businesses - like productive workers, research, high-quality transportation and other business services.
Smart businesses (both large and small) understand the crucial role that government services play in creating an economic climate that helps them succeed. They realize how an educated, creative and skilled workforce - just the sort of "human capital" that Minnesota offers in abundance - boosts their bottom line.
Savvy businesses also understand that tax rates on paper do not tell the whole story. Instead, they ask how much they will actually pay. In other words, what will the effective tax rate be on their investment after accounting for all the credits, deductions and other tax provisions that come into play?
We compare quite favorably to other states in this regard. Minnesota has the 10th-lowest effective tax rate on new corporate investments, reports consulting firm Ernst & Young (Competitiveness of State and Local Business Taxes on New Investment, April 2011).
And we have the 14th-lowest "total effective business tax rate" - the average tax burden on existing business - according to another study Ernst & Young did for the nonprofit Council on State Taxation (Total State and Local Business Taxes, July 2011).
Indeed, Minnesota and the Twin Cities metropolitan area are downright business-friendly according to several other reports. For example:
The greater Minneapolis-St. Paul region is the 12th-best market in the U.S. for small business creation and growth, in a study by the Business Journal (2011).
Health care start-ups in Minnesota raised $88.3 million in investment during the first half of 2011 - more than any other state - according to a study by BioEnterprise.
Minnesota ranks 4th in the Midwest in venture capital funding for life-sciences start-ups, according a 2010 survey by BioEnterprise.
Minnesota ranks 5th in the The Beacon Hill Institute's most recent State Competitiveness Report (2010).
Minnesota places 7th in CNBC's annual ranking of the Top Places To Do Business.
Our tax system is not perfect, and Gov. Mark Dayton has initiated a serious tax reform effort to enhance simplicity, fairness and economic growth.
What's most important is whether the things we buy with public dollars provide an overall benefit to Minnesota businesses and workers while enhancing the state's consistently strong economic performance.
The primary concern for state policy makers and business leaders should be our state's overall business climate and economic prosperity, rather than a narrowly defined tax index. Gov. Dayton is focused on job creation - with his bonding bill, support of a Vikings stadium and a jobs tax credit. It's up to all of us to tout - with accurate data - the strong business climate and high quality of life that we enjoy in Minnesota if we expect others to explore what our state has to offer.
Smart spending on human capital, infrastructure and other public investments that promote growth are something Minnesota has always believed in, and benefitted from. As we make the state tax system more efficient, we must also build on our previous investments, which have played such a key role in Minnesota's success.
Myron Frans is commissioner of the Minnesota Department of Revenue.
Link to original article: http://www.twincities.com/opinion/ci_19930893