State of the State Fact Check

Governor Pawlenty’s final State of the State (SoS) address included a number of statements regarding taxes, spending, and Minnesota’s economic performance.  Some of the statements were factual and others—well—not so much.  The following examination of lines from the Governor’s speech will be limited to claims regarding taxes, government spending, and the economy.

“We’ve seen Minnesota GDP grow by more than 25% during my time in office.”

Presumably Pawlenty is referring to the period from 2002 to 2008 (the most current year for which state GDP data is available from the U.S. Bureau of Economic Analysis).  If so, the Governor was being modest; according to data on the BEA website, Minnesota GDP grew by 32% over this period.  However, this is four percent below national GDP growth.  On major indicators of economic performance—including GDP, income, and job growth—Minnesota has lagged behind the U.S. average during Pawlenty’s tenure.

“We have the 3rd highest corporate income tax rate in the developed world.”

This is a repeat of a fallacy that the Governor used in last year’s SoS.  Based on information from the conservative Tax Foundation [PDF], the highest statutory corporate tax rate in at least three other states is above Minnesota’s highest rate.  It is difficult to see how Minnesota can be among the top three in the developed world if we are not even among the top 3 in the U.S.  Furthermore, statutory tax rates are not a good way to measure the corporate tax burden because it overlooks differences in corporate tax base, which varies dramatically across jurisdictions.  This issue was discussed in a January 2009 Minnesota 2020 analysis.

“Minnesota’s business tax climate is the 8th worst in the nation.”

This sort of claim generally comes from anti-tax groups that examine business tax burdens while paying relatively little attention to the benefits that businesses derive from public investment.  Based on more holistic measures from the annual Development Report Card (DRC) for the States, Minnesota consistently ranks among the top 20 states in the nation in terms of both business vitality and development capacity.  The DRC focuses on actual outcomes, such as business and job growth, and not just inputs, such as taxes and other costs.

“It [the JOBZ program] is needed and it works.”

Pawlenty needs to read the JOBZ report [PDF] from the non-partisan Office of the Legislative Auditor.  As summarized by Minnesota Public Radio, the report concludes that “JOBZ has not met its goal of targeting areas that are considered economically distressed and in most need of assistance.  In addition, the program has subsidized some businesses that are competing with existing Minnesota companies for the same customers.  The report also raises questions about the true economic impact of JOBZ.”

“From 1960, the year I was born, until I became Governor in 2003, state government spending increased an average of 21% every two years.”

Actually, biennial state government spending grew at an average biennial rate of 19% during the period cited, but let’s not quibble.  Pawlenty neglects to mention that a significant portion of state spending growth was due to programs that he supported as House Majority Leader, such as the state takeover of general education funding.  Because funding for public functions can be shifted from one level of government to another over time, we need to look at the rate of growth in combined state and local government spending.  We also need to take into account inflation and growth in the state’s population.

The closest year to 1960 for which data on total state and local government spending is readily available is 1962 (from the U.S. Census of Government).  From 1962 to 2007 (the most current year for which Census of Government data is available), real per capita total state and local government general expenditures grew at an annual average rate of 2.0%, while taxes grew at 1.7%.

Is a two percent annual growth in total state and local spending over a 45 year period significant?  You bet it is.  On the other hand, we ask government to do a lot more today than we did when infant Pawlenty was born.  Environmental protection and education of special need students are two examples that come immediately to mind.  It contributes nothing to a meaningful policy discussion to complain about growth in government spending over the last half century without acknowledging changes in society or the increased demands that we have placed on government on a bi-partisan basis.  For more on this, click here.

“Most states outpacing Minnesota in job growth from 2003 to the crash of 2008 spend less, not more, per capita, on government.”

The Governor is right on this one.  What he fails to mention is that most of the states with higher per capita spending than Minnesota also have higher job growth than Minnesota over the last five years.  In fact, the vast majority of all states—both those with lower and higher per capita spending than Minnesota—had greater job growth than Minnesota.

This is a reiteration of a claim that the Governor made in December 2008.  As Minnesota 2020 demonstrated at the time, a statistical analysis of the data the governor was using revealed that there is no relationship between job growth and per capita government spending.

Since 2002, Minnesota has led the nation in cutting taxes, fees, and other own-source revenue.  Despite the fact that Minnesota has closely adhered to the anti-tax strategy for creating jobs, employment growth in Minnesota has lagged well behind the national average.

“I am calling for a constitutional amendment to require that future spending commitments not exceed revenues currently collected… That’s a common sense approach understood at every kitchen table in Minnesota.”

This is the Governor’s pitch for his spending amendment to the state constitution.  In fact, the amendment would put a restraint on government budgets that no Minnesota family would accept by limiting spending not to the amount brought in today, but to the amount brought in two years ago.  The amendment is a thinly veiled attempt to force the state to address deficits within the current biennium entirely through spending cuts with no revenue increases.   Pawlenty’s “kitchen table” analogy—as well as the amendment itself—doesn’t make sense.

“The property tax caps we passed a couple years ago are helping.”

An analysis of preliminary 2010 property tax information reveals that the property tax caps that the governor is promoting had virtually nothing to do with the modest rate of property tax growth in 2010.  A longer term analysis of property tax caps—referred to as “levy limits”—confirms what the short-term data shows.  The property tax caps that the governor promotes are what politicians trot out when they want to appear as if they are doing something about property taxes.  If Pawlenty is serious about holding down property taxes, he can stop dumping a disproportionate share of the state’s budget problems into the laps of Minnesota property taxpayers through disproportionately large cuts in property tax relief programs.

The governor’s tax and spending claims in his SoS do not bear up well under close scrutiny.  Minnesota needs leadership that will address Minnesota’s budget and economic problems based on facts, not on spin.

Posted in Economic Development | Related Topics: Economic Growth  Job Growth  State Budget  Tax Fairness  Tim Pawlenty 

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