June 27, 2014 at 1:00 am

THE MIDWEST ECONOMY

What Michigan can learn from Minnesota

It’s an article of faith among many elected officials that low taxes and tight-fisted government spending are essential to healthy state economies.

Minnesota has for decades adhered to a different strategy, one that embraces high taxes to fund education, transportation, a strong social safety net and other investments required for citizens to prosper in a knowledge-based economy.

It has the strongest economy in the Great Lakes region and ranks among the wealthiest states in the country.

Minnesota’s per capita income in 2012 was $46,227, an eye-popping $8,730 more than Michigan’s per capita income of $37,497.

Minnesota’s jobless rate in April was 4.7 percent, far below Michigan’s unemployment rate of 7.4 percent.

Michigan Future Inc., an Ann Arbor-based think tank headed by President Lou Glazer, has long touted Minnesota as an economic model for Michigan.

While it’s generally known that Minnesota is a high-tax state, the details of its tax and spending priorities likely are unknown to many residents and policymakers in Michigan.

Michigan Future asked me to research Minnesota’s tax structure and its spending priorities, as well as its welcoming policies and regional cooperation in the Minneapolis-St. Paul metro area.

You can read my report and view a quick information graphic on Michigan Future’s home page.

“Our hope is that it will expand the conversation in Michigan and its regions about what economic policy should be to return Michigan to prosperity in an economy being transformed by globalization and technology,” Glazer wrote in an introduction to the report.

The public policy differences between Michigan and Minnesota are staggering.

Individuals and businesses pay far higher tax rates than those in Michigan.

Minnesota has a progressive personal income tax system in which the wealthiest wage earners pay 9.85 percent of their income.

That rate is more than double Michigan’s flat tax rate of 4.25 percent.

Minnesota’s bottom personal tax rate is 5.35 percent.

Minnesota’s tax rate for “C” corporations is 9.8 percent, 63 percent higher than Michigan’s corporate tax rate of 6 percent.

Unlike in Michigan, all Minnesota’s businesses pay at least a small tax through the state’s minimum fee.

The sales tax rate in Minnesota is 6.875 percent compared to Michigan’s 6 percent rate.

A small portion of Minnesota’s sales tax — 0.375 percent — is dedicated to wildlife protection, water quality, parks and trails, and art and culture.

How to pay for repairs to crumbling roads and expand public transportation is a huge issue in Michigan that lawmakers so far have not been able to resolve.

Michigan relies mainly on its gasoline tax of 19 cents a gallon to fund transportation, a tax that has not been increased since 1997.

Minnesota’s gas tax of 28.6 cents a gallon is 9.6 cents higher than Michigan’s 19 cents.

Minnesota also funds transportation with a 6.5 percent sales tax on motor vehicle purchases and a motor vehicle registration tax.

As a result, Minnesota spent $502 per capita on transportation last year, more than double the $223 per capita spent by Michigan.

Minnesota also spends more per capita than Michigan on K-12 education, higher education, revenue sharing, and health and human services.

Unlike in Metro Detroit, local units of government in metro Minneapolis-St. Paul share revenue from new industrial and commercial development to promote more orderly economic development in the region.

The Michigan Future report also outlines a number of areas where Minnesota is welcoming to all, including legal same-sex marriage, a “Dream Act” that allows undocumented residents who graduated from state high schools to obtain in-state tuition and no affirmative action ban on college admissions.

As in Michigan, there is a debate in Minnesota over the optimal level of taxation.

The business community, in particular, has long complained that high taxes make Minnesota less attractive to new investment.

But Minnesota’s high per capita income, low unemployment and well-educated workforce, detailed in the report, make it difficult to argue that the state is on the wrong path.

Rick Haglund was a state business and economics writer for 24 years at Booth Newspapers.