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Why Minnesota outpaces Michigan: Higher taxes?

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Although Minnesota and Michigan are about the same size and in the same region of the nation, Minnesota typically outscores its neighbor to the east on most measurements of business and prosperity. Now a new study suggests why.

Think tank Michigan Future Inc. produced a report titled, "State Policies Matter: How Minnesota's tax, spending and social policies help it achieve the best economy among the Great Lakes states." It compares how Michigan and Minnesota have prioritized taxes, spending and social issues to review why Minnesota's economy is stronger than Michigan's.

Crain's Detroit Business looked over the report and concludes that higher taxes — including those on business — get much of the credit for Minnesota's superior economic fortunes that have "so outpaced Michigan" since 1990. The MLive website adds that Michigan and Minnesota have "vastly different budget priorities" that have pushed Minnesota to the top in the Great Lakes region.

Minnesota has a tradition of "taxing and spending priorities that reflect its long-held belief that support for education from preschool to the university level, and high-quality government services, are key ingredients in producing prosperity for its citizens," the report said.

The study notes that in 2012, Minnesota's per capita income averaged $10,000 more than Michigan's. Minnesota's per capita income was the highest in the Midwest and 11th in the U.S., while Michigan's was 35th in the nation. In making a case that low taxes don't necessarily create prosperity, the report cited Indiana, known for its low-tax, small-government, anti-union philosophies. Indiana ranked 39th in the country in per capita income in 2012.

"It’s clear that if Michigan is to regain the prosperity it enjoyed decades ago when the auto industry here reigned supreme, the state must aspire to be more like Minnesota than Indiana," report author and MLive columnist Rick Haglund wrote.

In comparing other statistics, the report noted that Minnesota's jobless rate in December was 4.6 percent, the ninth-lowest in the country, while Michigan had the fourth-highest rate, at 7.3 percent. Another statistic in the report looked at the poverty rate in 2012; Minnesota's rate was 11.4 percent, compared with 17.4 percent in Michigan.

A reason for Minnesota's more favorable statistics, said the report, is "a willingness by Minnesota's residents and elected officials to pay higher taxes to support infrastructure and education. This, in turn, explains Minnesota's rich mix of knowledge-based industries that pay high wages and the state's success in keeping and attracting college graduates."

Minnesota also spends more per capita on local government aid and transportation than Michigan, while spending less than half as much on corrections.

"Lawmakers and governors in many states, including Michigan, have focused on cutting taxes and shrinking the size of their governments as the path to prosperous economies," read the report's conclusion. "Minnesota has traveled a different path."

Living in Minnesota does come with a higher price tag than Michigan's. "There is no question Minnesota is a high tax state," the report states. "Its residents paid $1,630 more than Michigan residents in state taxes alone last year. But it has largely invested that additional revenue in services and investments that matter in a knowledge-based economy."

In addition to budget priorities, the report reviews differences in social policy. Minnesota has legalized same-sex marriage, allows same-day voter registration, has no voter ID requirement and allows undocumented immigrants to receive in-state tuition at state universities, all policies Michigan has not adopted.

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