I recently read the Tax Foundation report on the 2014 State Business Tax Climate Index. Changes in our tax structure last year have driven Minnesota down to 47th place. Only California, New Jersey and New York now have worse business climates than we do.
The new Minnesota tax rate passed last year at the $150,000 level is 9.85 percent. Our tax at this level is higher than California at 9.3 percent, New York at 6.65 percent and New Jersey 6.37 percent. The higher rate was made retroactive to Jan. 1, 2013.
We know that many businesses and people with wealth have fled from California and New York in recent years. This outmigration has been primarily from the high tax states to those that are more business and wealth friendly. Some of these benefiting states are Florida, Texas, Nevada, Wyoming, and South Dakota. Some states such as Wyoming, Nevada, and South Dakota have no individual or corporate income tax. Four others do not have personal income taxes.
We have been spending some time in Texas this winter. The television stations here are deluged with New York state advertisements pleading with Texas businesses to move there. The ads say that a company that moves to New York can avoid paying taxes for 10 years.
This is clearly a desperate attempt to reverse the flight of businesses and citizens from their state.
The U.S. Department of Labor reported that most mass job relocations were from one state to another, rather than to a foreign country.
Fred Siegel, contributing editor of City Journal wrote an article on May 24, 2011,”Why New York’s Future is Fleeing.” He reported that one third of New Yorkers under age 30 planned to move to other states for jobs. A July 1, 2012 New York Times article reported that the city’s biggest Wall Street investment houses were moving jobs out of the area to other states that were less expensive.
The situation in New York is summarized in the March 31, 2013 New York Daily News article, “New York’s Future Flees to Florida.”
Most of those moving to Florida are young people going there to find work. Over 1.7 million New Yorkers moved to other states between 2000 and 2010. The trend was attributed to people immigrating to states that allow them to keep more of their money and run businesses without undue interference by government.
Leslie Whatley was appointed executive vice president of the new “Start-Up NY” program by Governor Andrew Cuomo. Whatley on Oct. 21, 2013 said that the program was designed to address years of complaints that businesses were leaving NY because of high taxes.
Starting this year, under the New York program, companies that move there and their employees will be exempted from state taxes for 10 years.
California has had a huge outmigration of businesses in recent years due to high taxes and overregulation. Many of its businesses have moved to Texas, Nevada, Arizona, Colorado and other states. I personally did some consulting a few years ago for a company that moved from California to Sturgis South Dakota for these reasons.
Time Magazine had an Oct. 17, 2013 article by Ryan Sager on why Texas is our fastest-growing state. It was entitled, “Tyler Cowen’s 10 Reasons Texas is Our Future.” The state has 8 percent of the nation’s population. However, between 2002 and 2011 it created nearly one-third of the country’s highest paying jobs. Some of the reasons for relocating have to do with cost of living and the skills gap.
However, the primary reasons are lower taxes and less-restrictive regulations. A Texas resident pays a total of $3,500 per year in taxes. California residents pay $4,900 and New Yorkers pay $7,400.
There is no question that high taxes and overregulation can drive business and jobs to other states. Our new higher taxes may also drive jobs and wealth out of Minnesota as it has in some other states.
Readers who want to learn more can find the 2014 State Business Tax Climate Index at: http://tinyurl.com/qg4j64d.
Chuck Drury is an Anoka resident, retired engineer and former technical director of Federal Cartridge Company.