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  • Growth & Justice is a progressive think tank committed to making Minnesota's economy simultaneously more prosperous and fair. We believe that at a time of deep partisan division, Minnesotans can unite around one goal: a strong and growing state economy that provides a decent standard of living for all.

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April 23, 2008

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Craig Westover

Aside from the fact that there are so many other factors that go into this kind of analysis (a huge dam project out west, for example, can kick a positive return to a low population state, while millions more sent to a high population state still doesn’t reach break-even), what’s the point?

The fundamental question is whether redistribution of wealth on the scale the federal government does it is good or bad economic policy. Doesn’t matter if it is Republicans or Democrats doing it. A political party or a partisan organization might find it useful to make hay out of data like this, but a think tank, which ostensibly is interested in good public policy and sound economics, ought to be more interested in the fundamental question, no?

Besides, shouldn’t a good Minnesotan be “Willing to Pay for a Better United States”? :-)

Rich Goldsmith

I think, given that the point of having a Federal system as we do is to create a stable whole that is greater than the sum of its parts, that's it's the height of idiocy to take any major issue with the fact that MN is a donor state. If the money we send out helps to turn around backwaters throughout the country, it helps us in the long run.

If you don't like it -- move to West Virginia. Bring your sister.

Charlie Quimby

As Rich implies, a tax system is about redistribution of wealth at some level — between wealthier individuals and struggling families, between rich suburbs and underfunded inner cities or strapped rural communities, and between states that do better and those that do worse. Not to mention those that may have strategic or economic value to the rest of the country (with ports, energy reserves, defense industry/bases, etc.).

As a more prosperous state with high average income, it only makes sense that Minnesota would be one of the donors. But I don't think you'll see many who believe that this redistribution is wrong redistributing themselves to West Virginia. They like to have their cake and complain about it, too.

Rohn Jay Miller

I posted some comments on this issue a few weeks ago on MNBlue.com regarding Pawlenty's veto (at that time) of the Central Corridor. Pertaining to this very interesting analysis, let me make a couple of points:

1. The difference between the average and Minnesota's actual amount of federal money flowing into the state is a small fraction of our total economy. As of 2006 we ranked 9th highest among all states in per capita "gross domestic product (GDP)" which is the amount of goods and services we produce--literally the size of our economy. That means that unlike rust belt states like Michigan and Pennsylvania, or traditionally poor states like Mississippi, the economy of Minnesota includes a lot of jobs that produce high value products and services -- health care, medical technology, agri-business, high tech.

2. The size of Minnesota's total economy (in the year 2006) was about $225 billion.
(source: http://www.bea.gov/newsreleases/regional/gdp_state/gsp_newsrelease.htm) So the economic effect of losing $450 million through is veto is about 0.25% of our economy. The difference between what the average state takes in from the Federal Government and what Minnesota takes in---even though we rank near the bottom of the 50 states--is about $14 billion. That's still less than 6% of the state's entire GDP.

3. Even our rank of 48th in taxes out vs/ taxes back needs to be understood more closely--it's not really bad news. Minnesota has always ranked near the bottom of states in return of federal dollars back to the state vs. income taxes paid. From 1990-2006 we averaged 46th in the nation. Since 1980 we've averaged 44th.

If you look at the states at the top of the list in net federal dollars in (New Mexico, Mississippi, etc.) they tend to be states with poor economies and poor paying jobs (and some small states like North Dakota with extensive military facilities) The states at the bottom (New Jersey, Connecticut, Minnesota etc.) have stronger economies and better paying jobs.

This makes intuitive sense, since we should be sending more federal program aid into those states that need it more than others.

Thx-RJ

Derek Baker

As the blogger cited (originally from Oklahoma; now I live in New York City), I feel I should at least point out that Quimby's observation (that the bottom of the donor list mostly has the healthier economies) was another point I made last year, which is that states with higher incomes tend to vote Democrat. So it makes sense that these would also be the "donor" states. My analysis wasn't to make any kind of argument for a redistribution system -- as others here have noted, that's in essence what a federal tax and budget do. My only goal here is to demonstrate the hypocrisy of the GOP's talking points (which Quimby included). An even earlier analysis I did the year before showed that the states that voted most strongly for Bush in 2004 and the states that passed constitutional amendments banning gay marriage (a big overlap, of course) had higher average divorce and teenage pregnancy rates than the states that voted most heavily for Kerry. (Minnesota didn't show up in either list.)

Again, my only point was hypocrisy -- in this latest instance, to show that Republican members of Congress are no less willing to feed at the public trough than Democrats are. I now return you to your regularly scheduled Growth & Justice for Minnesota discussions...

Dan Larson

You'd think Rhode Island and Vermont - affluent states with small, affluent populations and small territory in general would higher on the donor list with similar states such as connecticut, new hampshire, and new jersey.
What great infrastructure is there in those two states that requires so much federal money? Maybe they don't provide much in the way of commercial/industrial taxes?

But yeah, nothing wrong with being a donor state. Being the fifth greatest donor state is actually heckuva accomplishment when you consider we have the 21st highest population and the 12th largest area of any state.

That's quite a bit of infrastructure being more than paid for by MN tax payers.

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