A question

Governor Snyder in a MLive op ed writes: “Raising the taxes on our job creators would be economically challenging for Michigan, especially after we’ve come so far in reinventing our business climate.” (The op ed is arguing against proposals to raise the corporate income tax to help pay for roads.)

The Governor, of course, is not alone in the belief that low business taxes are essential to economic growth. One can make a strong case that it is conventional wisdom. Which should raise the following question:

If higher business taxes “would be economically challenging for Michigan”, why does Minnesota with far higher business taxes than Michigan have an unemployment rate so much lower than Michigan and, more importantly, an employment to population rate so much higher than Michigan?

Here are the data on employment and business taxes in the two states:

Minnesota’s June unemployment rate is 3.9 percent compared to Michigan at 5.5%. Minnesota’s employment to population ratio (it measure the proportion of those 16 and older who work) is 67.0 percent compared to Michigan at 56.2% (in the bottom ten nationally).

If the same proportion of Michiganders worked as Minnesotans there would be 847,000 more Michiganders working today. Michigan employment would grow from 4.40 to 5.25 million.

As we detailed in our 2014 State Policies Matter report:

“Minnesota taxes businesses at a higher rate than does Michigan. And unlike in Michigan, most Minnesota businesses are subject to state corporate income taxation. “C” corporations—generally large shareholder owned operations— are taxed at a 9.8 percent rate (Minnesota calls its corporate income tax a “franchise tax”), compared to Michigan’s 6 percent corporate income tax rate. Like Michigan, Minnesota assesses its corporate income tax only on “C” corporations. Partnerships, “S” corporations, limited liability companies and sole proprietorships are exempt. Minnesota businesses with a combined value of property, payroll and sales exceeding $500,000 also pay a “minimum fee” ranging from $100 to $5,000.”

Michigan does not have a general state tax for businesses other than “C” corporations. Business taxes account for 8.3 percent of Minnesota’s state revenue compared to 2.6 in Michigan.

 

If the same proportion of MIchiganders worked as Minnesotans there would be 847,000 more Michiganders working today. Michigan employment would grow from 4.40 to 5.25 million. – See more at: http://www.michiganfuture.org/07/2015/employment-in-michigan-and-minnesota/#sthash.A3MuFJDe.dpuf
If the same proportion of MIchiganders worked as Minnesotans there would be 847,000 more Michiganders working today. Michigan employment would grow from 4.40 to 5.25 million. – See more at: http://www.michiganfuture.org/07/2015/employment-in-michigan-and-minnesota/#sthash.A3MuFJDe.dpuf
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Lou Glazer

Lou Glazer is President and co-founder of Michigan Future, Inc., a non-partisan, non-profit organization. Michigan Future’s mission is to be a source of new ideas on how Michigan can succeed as a world class community in a knowledge-driven economy. Its work is funded by Michigan foundations.

This Post Has 2 Comments

  1. Higher taxes may have helped result in a stronger economy in Minnesota. However we need to be careful in analyzing this the main thing helping Minnesota stay on top is the high level of useful services provided. Higher taxes may be necessary to fund the higher services. Michigan should learn from Minnesota. We need to provide better state services to attract talented workers and more business. The 2 or 3 services Michigan needs to improve the most are education, roads and other transportation infrastructure, and developing more live-able cities. This will cost money and we may need to raise taxes, but taxes should be raised with specific goals in mind. We need to manage the proceeds of any tax increases carefully and make the proceeds are efficiently getting to the purposes to which they were intended.

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