Pawlenty Business Climate Forecast Too Chilly
February 22nd, 2010 at 11:33 am By Lincoln HughesRecently, Governor Tim Pawlently has claimed the business climate in Minnesota to be “out of balance” and “eight worst in the nation.” He seems to assume Minnesota businesses will relocate and entrepreneurs will avoid the state if corporate taxes are not lowered immediately. This theory holds true ceteris paribus (all other things held equal), but the statistical reality suggests other aspects of the Minnesota business climate make it attractive.
Minnesota has enjoyed economic prosperity relative to the other forty-nine states in the 21st century. The Bureau of Economic Analysis states the 2008 GDP per capita (total output divided by total population) was $42,772, good for tenth overall. Taking out the New England states, Minnesota is only behind Alaska and Wyoming which were sheltered from the recession because of their supply of natural resources. Considering these facts, it is tough to argue the only thing influencing the business climate is corporate taxes as Governor Pawlenty implies.
Human capital and social capital are two important factors of production that Minnesota enjoys. Human capital is used to describe a population’s education and training. Despite a serious achievement gap, the education and job training systems of the state consistently rank high (World-class Schools, World-class Jobs). This means Minnesotan’s human capital increases the attractiveness of the business climate which conflicts with Governor Pawlenty’s recent statements.
Another component that contributes to the business climate is social capital. Social capital can be described as connections within and between social networks or “community-glue”. Voter participation rates, trade alliances, volunteering and bowling leagues are examples of how this concept is measured. For businesses, a high level of social capital corresponds to high level of collaboration. Minnesota also ranks high in this category as shown in the figure below (and here).
Considering all the factors that contribute to a state’s business climate, Governor Pawlenty’s recent comments are too dependent on corporate taxes. Looking at Minnesota’s supply of human and social capital gives reason to be optimistic about the state’s economic stability. It also undercuts Pawlenty’s tax and spending cut rationale to improve the state’s business climate.
Tags: Business climate, GDP
If the State of Minnesota is as bad as the Govenor always states, why is he still here? Also, with all the bad mouthing he has done about Minnesotas’ business climate, could that be a reason for businesses from outside the State shunning Minnesota for possible relocation? After all if the Govenor does not stand up for his State why would anyone want to come here. I am sure other US Govenors all promote their States, but our Govenor has never promoted Minnesota for anything anyttime, best I can recall.
If business taxes were so important, elimination of corporate income tax, property taxes and other taxes should spur business development like crazy. The MN JOBZ Program did this for expanding businesses for ten years. Users of the program have been few and far between.
Lower taxes do not lead to more employment. It is a demonstrably false meme.
When you factor all 50 states corporate rates and their unemployment level, there is a small negative correlation between tax rate and unemployment. In other words, a higher than average tax state will more likely have LOWER than average unemployment. 5 states have zero tax and Ohio has .26%, or basically nothing. Of those 6 corporate Nirvanas, only South Dakota has low unemployment. Since September, our neighbor Wisconsin has gotten 3% more unemployment while we have only gotten 1% worse. Wisconsin has a lower corporate tax, so how did they lose more jobs than we did? Iowa has the highest tax in the entire nation! There unemployment is markedly lower than ours. Why haven’t the Iowans lost all their jobs since they tax so much?
http://mnprogressiveproject.com/diary/5318/will-corporate-tax-cuts-help-unemployment
Pawlenty isn’t interested in facts, or in Minnesota, much. He doesn’t care if the state prospers or not. His true audience are the teapartiers.
Why people leave is MUCH more complicated than taxes. Like, heading to warmer climates, esp. after retirement.