As the Legislature and governor continue their staring match, a new report suggests that Minnesota is at a competitive disadvantage to other states.

Art Laffer and two co-authors have released the fourth edition of “Rich States, Poor States,” which includes a ranking of the 50 states on a variety of measures. “Generally,” the authors say in the executive summary, “states that spendless, especially on income transfer programs, and states that tax less, particularly on productive activities, such as working or investing, experience higher growth rates than states that tax and spend more.”

That may explain why Minnesota ranks 41 out of 50 states on the “economic performance rank,” which tells us where we’ve been over the last 10 years. Minnesota did better than only 9 other states. The economic  performance rank has three sub-components:

  • Growth in income per-person: 36. In other words, we’ve been growing slower than most states.
  • Absolute domestic migration: 37. Minnesota has lost people.
  • Employment growth (non-farm): 30. Minnesota experienced a slight loss in jobs.

Performance numbers are from either 1999 to 2009 or 2000 to 2009.

The report also offers an “economic outlook rank,” which tells us where we’re headed. Minnesota does ever so slightly, at 37 out of 50. That’s about the same as the forecast for the previous three editions of this annual report.

The economic outlook rank, a forecast of relative economic growth, is composed of 15 items. Minnesota’s best score out of the 15 is on the minimum wage, for the simple reason that its minimum wage is not higher than the federal one.  (The minimum wage contributes to unemployment by pricing low-skilled workers out of the marketplace.)

Minnesota also gets above-average rankings for its state liability system (11), sales tax burden (16), recently legislated tax changes (17), debt service as a share of tax revenue (17), public employees per population (18), and property tax burden (22).

It has below-average rankings in personal income tax progressivity (31), worker’s compensation costs (35), number of tax expenditure limits (35), burden for taxes not otherwise included (37), top marginal income tax (39), top marginal corporate income tax (45), inheritance tax (50), and right-to-work status (50). Note that the state has a low rankings on the kinds of taxes–marginal income taxes–that the executive summary highlights.

On three measurements, the “right” score gives a state a “1,” and the “wrong” score gives it a “50.” So there are many states that score a “1” on the minimum wage question (for not having a minimum wage that is higher than the federal wage) and a “50” on the inheritance tax (they have one) and a right-to-work law (they doesn’t have one.)

On the question of public pension liabilities, the report points out that though the Pew study on pensions puts them at $10 billion, two other studies put the amount at $55-50 billion.

It all adds up to a case of Minnesota falling behind other states in terms of economic vitality. Compare Minnesota to the average of the top 10-performing states For example,. consider how the top 10 states compare to Minnesota.

TOP TEN STATES v. Minnesota

  • Gross State Product Growth: 58.5 percent (Minnesota: 36.7)
  • Personal Income Growth: 54.5 (Minnesota: 37.0 )
  • Personal Income per Capita Growth: 44.3 (Minnesota: 34.6)
  • Population Growth: 12.1 (Minnesota: 6.7)

In addition to the rankings, the report offers up a number of case studies, observations, and notable successes and failures in the states.