The current budget surplus is no doubt largely driven by the massive 2013 tax increase that Gov. Mark Dayton and the then-DFL-controlled Legislature imposed on Minnesota.
In his recent State of the State address, Dayton made a special point to argue that those tax increases were imposed "on only the wealthiest 2 percent of Minnesotans." He then went on to entirely discount the impact these high taxes have on Minnesota's economy.
But there can be no denying that taxes matter. It's a basic law of physics that every action has a reaction and a basic law of economics that when you tax something, you get less of it.
New data from the IRS provide convincing evidence that Minnesota is not somehow free from these laws and getting away with taxing either the rich or the middle class without any economic impact. People vote with their feet, and Minnesota is losing families and their income to lower-tax states.
These IRS data track the movement of taxpayers and income across the country by identifying when people list a new state of residence on their tax return. For instance, if a Minnesotan reporting $50,000 in income moves to Kansas, the IRS reports a $50,000 outflow from Minnesota to Kansas, and vice versa. These data are based on every tax return filed, not on a sample, and so they are incredibly reliable.
I analyzed these data for a new report published by the Center of the American Experiment titled "Minnesotans on the Move to Lower Tax States 2016." The results provide the first look at how Minnesotans are reacting to tax increases imposed in 2013, and the findings are alarming.
Minnesota, on net, lost $1 billion of income to other states between 2013 and 2014. Specifically, the state lost $944 million in adjusted gross income reported by tax filers who moved in and out of Minnesota. This is the largest net loss of income ever reported for Minnesota, and it represents a dramatic rise from just three years ago, when the state lost $490 million.
While the IRS has been tracking income movement since 1992, it released a new data series last year that for the first time provides annual information on who is moving from state to state, based on age and income. These new data refute a long-held assumption that Minnesota's income loss is primarily due to retirement.