Growth & Justice Blog

Some tax reforms fit theory & ideology — but reality?

In a forum for gubernatorial candidates early this week, I heard GOP candidate Tom Emmer extol tax reform efforts in Rhode Island as a possible model for encouraging economic development under an Emmer administration. In June, I wrote about the Rhode Island measure, pointing out its tax reforms were positive but any economic impact claims were unproven.

To hear such praise for the Rhode Island reforms, you'd think the nation's tiniest state was already on the way to recovery and worthy of emulation by our lawmakers.

In fact, Gov. Carcieri only signed the Rhode Island bill in June. About the only "measure" of its success so far is a declaration by the right-leaning Tax Foundation that Rhode Island now ranks 41st on its index of business tax climate, compared to 44th before the reforms passed. Minnesota ranks 43rd. (As of July, the Bureau of Labor Statistics reports Rhode Island's seasonally adjusted unemployment rate at 11.9%; Minnesota is at 6.8%.)

The Tax Foundation also said:

[Rhode Island] puts heavy reliance on the usual corporate giveaways through the tax code (job credits, research-and-development credits, investment credits, film credits, etc.). These programs are generally more about photo-ops and handouts to the politically connected than broad-based economic development.

In other words, a state that has resorted to cosmetic job creation measures in the past has marginally improved its low ranking on a scale that largely exists to browbeat states into favoring businesses in their tax codes.    It's highly questionable whether we should emulate a state that has absolutely no track record of improved job results.

Lowering taxes as an economic development strategy may not fit reality, but it fits hardcore conservative ideology.

Also this week, Craig Westover published an op/ed that headed off in a similar direction. In criticizing proposals to raise the marginal income tax rate on the state's top earners, Westover says, and we don't disagree:

High wage earners tend to be individuals with unique skills and knowledge highly sought after in the marketplace. A nationally known college professor, a talented engineer, a successful school superintendent, a CEO with a proven track record, an entrepreneur with a great idea looking for a place to start a business — such people are highly mobile and can live and work just about anywhere they choose.

In fact, most economists would agree with his statement of economic theory. The problem, though, is they have a hard time finding a way to prove it in the real world.

As Westover says, "All other things being equal, they choose to work where net income (after taxes), not gross income, is competitive."

All other things are not equal. If they were, no state would have a reason to tinker with its tax code. And the North Dakota Dodgers might be playing the Pawtucket Red Sox in the World Series.

Growth & Justice has been studying the literature on tax studies that might shed a light on how much state taxes make a difference in fiscal policy and economic growth.

Watch for it this fall.

— Charlie Quimby

Whose problem? Fewer high school degrees in Minnesota

Minnesota is threatened by drastic disparities between white residents and Minnesotans of color. (See The “Coloring” of Minnesota). Interestingly this is usually presented as a problem for the state’s communities of color but it’s far more than that. Case in point: The lagging rates of high school completion.

Among Minnesotans ages 25 and older, 92.6% have at least a high school degree (or equivalent), according to the Census Bureau’s latest American Community Survey (ACS) data for 2008. This is about 6 percentage points higher than the national average of 86.2%. Good news.

But in estimating the outlook, G&J finds that the share of Minnesotans with a high school degree (or equivalent) or higher will likely drop from 92.6% in 2008 to 88.5% in 2020, barring changes in the current trends. Bad news.

In other words, at the current graduation rates and at the projected level of population growth, in ten years, Minnesota’s 25- to 34-year-olds, as a group, will be relatively less educated than today.

Why is this decline expected? The statistical explanation for this is quite simple. As communities of color become a larger proportion of the total Minnesota population, they will also represent a larger proportion of our students. More important, since the graduation rates for Minnesotans of color – particularly African Americans and Latinos – are much lower than those for whites, the overall share of students graduating from high school will decline over time.

Although minorities will likely account for about 20% of the total Minnesota population in 2020, they will likely account for only 16% of the total share of Minnesotans 25-34 with a high school degree, meaning disproportionately fewer Minnesotans of color will earn the degree.

It’s All Connected.

The expected drop in the share of younger Minnesotans with high school degrees will continue to ripple through the state – in the form of lower college and trade school attainment, a less competitive work force, wage earners less able to support a family, and increased reliance on public programs for support.

High school graduates earn about $8,000 more annually than working adults without a high school degree. Specifically, the median earnings in the past 12 months for Minnesotans with less than a high school degree was $19,989 (as reported in the ACS, using 2008 inflation-adjusted dollars), while high school graduates (or equivalent) earned $27,448. Though the median earnings for those with a BA degree are significantly higher ($48,260), we must remember that most Minnesotans do not yet earn BA degrees – only 35.1% percent of Minnesotans ages 25-34 had bachelor’s degrees in 2008.

The ACS also reports that the poverty rate for those with less than a high school degree is 22.2%, while those with just a high school degree (or equivalent) have a poverty rate of about 9.3%.

What can we do about it?

Racial disparities in educational attainment will affect Minnesota as a whole, and they will not be reversed by simplistic but politically popular measures aimed at testing, reducing overall spending or changing certification requirements for teachers.

Based on research and insights from educators, Growth & Justice has formulated four principles for guiding Minnesota toward better outcomes from its education dollars. Of particular interest here is our finding that the greatest returns on education investment come from addressing the greatest disparities in opportunity and achievement. Effective investments address the whole student’s needs — social support, academic preparation, and improved access to early childhood and post-secondary learning opportunity. And there is no question that, overall, students of color may face different challenges and have different needs.

Perhaps by discussing Minnesota’s changing demographics, we can begin to get past the taboos of discussing these disparities and have a frank conversation about race in Minnesota. We can no longer afford to view issues at “their problem.” It’s our problem, today and tomorrow. As Minnesota’s demographics change, our policies must change course, too, for the good of us all.

- José Pacas

The "coloring" of Minnesota

As we prepare to choose our state leaders this fall, it’s time we reflect on an issue that seems to be non-existent in Minnesota’s political discussions: Racial inequalities.

As Minnesota’s communities of color become a larger part of the working age population – and the nonworking population of aging retirees remains very white – the need to address these inequalities is vital to ensuring our state’s continued economic vitality.

There’s no doubt about it: Minnesota is a very white state. The U.S. Census Bureau estimates that about 85% of Minnesotans are white non-Hispanics, nearly 20 percentage points higher than the national average of 65%. Thirty-nine of the 50 states are more diverse than Minnesota.

But Minnesota is becoming less and less white. The State Demographer’s Office projects that white non-Hispanics will drop to about 75% of the population by 2035, with nonwhites and Latinos accounting for the other 25%.

Disparities and Implications for Policy

The “coloring” of Minnesota should be a concern to policymakers because, if left unaddressed, disparities we see today will affect more of the population and place a greater drag on the state economy. We must start paying attention to the differences across racial and ethnic groups, which manifest themselves primarily in the form of drastic inequalities.

Did you know, for example, that the annual unemployment rate in 2009 for white non-Hispanics in Minnesota was 7.1%, but the rate was 22.5% for Minnesota’s African Americans and 15.5% for the state’s Latinos? Indeed, the Twin Cities has the worst racial disparities in unemployment among the nation's 50 largest metropolitan areas, according to a report by the Economic Policy Institute.

Did you know that the 2008 median household income was about $60,000 for Minnesota’s white non-Hispanics, but about half of that for the state’s African Americans, at $30,000? Median household income in Minnesota that year for American Indians was about $32,500, and for Latinos was about $41,000.

In the realm of education, these inequalities are pervasive. As a graduate student at the University of Minnesota’s Humphrey Institute of Public Affairs, I am one of but a handful of Latinos in my class. I’m not placing blame on the institution for that situation, but rather citing it as a symptom of the state of education for communities of color.

To be sure, the share of young Minnesotans of color that enrolls and graduates from schools of higher education is very low. For Latinos, for example, only 40% enroll in a Minnesota post-secondary institution, while about 50% of whites do.

An educated population has been a staple of Minnesota for decades. The state economist and state demographer for Minnesota both say that education has been a key contributor to the state’s success. But with the expected growth in the number of Minnesotans of color, we will lose this competitive edge unless we address racial inequalities in education.

Going Forward

For Growth & Justice, the issues of educational achievement and attainment for Minnesotans – and especially for Minnesotans of color – stand out as vital to our quality of life and our economic outlook. The Growth & Justice investment proposal for Smart Investments in Minnesota’s Students identifies evidence-based approaches and programs for boosting by 50 percent the share of students who finish a post-secondary education, with greater attainment needed for Minnesotans of color and American Indian students in order to reach that goal.

A recent series of short issue briefs from Growth & Justice offers key facts about why education matters, highlights challenges for Minnesota, and recommends public policies and approaches. And Growth & Justice has called upon candidates for office to set a goal of dramatically increasing higher education completion levels over the next decade, focusing especially on the achievement and attainment gap for minority populations in the state.

We can no longer ignore the inequalities, dismissing them because they impact only a small portion of our population today. If Minnesota is to depend upon its educated residents and workers, we must ensure the success of all Minnesotans when it comes to education. This is a critical point of fact for all of us – politicians included – to address as the “coloring” of Minnesota proceeds.

- José Pacas

Round-up of good news and commentary for practical progressives

Here's a round-up of some particularly good fodder for practical progressives in the news recently:   

• Washington Post columnist Ruth Marcus is continuing to develop as a thoughtful centrist heir to David Broder and she really hit the mark with her recent commentary (headlined in the Star Tribune, "If taxes never go up, we go down''). Marcus nailed Gov. Tim Pawlenty for his recent statement implying that the U.S. has higher taxes than most other nations, pointing out that our overall effective federal tax rate is much lower than it was a decade ago, and lower than all but Mexico, Turkey and South Korea among the 30 major world economies. Marcus skewered conservatives for continuing to claim that tax cuts actually produce more revenue and for their perennial complaint that "whatever level taxes are at, they are too high.'' Just a couple weeks ago, Marcus took on liberals and Democrats for refusing to acknowledge that some entitlement programs might have to be trimmed.
• One of the most refreshing "good that government does'' stories in recent memory landed on the St. Paul Pioneer Press front page over the weekend. An article headlined "Minnesota air pollution:  It's not as bad as you think,'' emphasized the rather astounding good news that since the landmark Clean Air Act of 1970, emissions from industrial polluters and vehicles have been slashed by 62 percent nationally and by half in Minnesota.
• Refuting a lot of conservative anti-Europe propaganda recently, author Steven Hill placed an op-ed in the Star Tribune pointing out that Japan and Europe and their more egalitarian market economies are doing quite well compared to the United States. Hill is the author of "Europe's Promise: Why the European Way is the Best Hope in an Insecure Age.''
• Finally, we think we offered a strong rebuttal to the false claim by some conservatives that government can't create jobs, or more broadly, that government is a net drain on the economy and can only consume wealth. Our Star Tribune "Counterpoint'' piece reviewed a long history of business-building investment and job creation in the U.S. and Minnesota.

— Dane Smith