Monday, July 12, 2010

Demolishing Emmerisms: "Voting With Their Feet"

It's become an Emmerism that Minnesota's high taxes and onerous regulations are driving the right kind of people out of the state. This Emmer appearance at MSU-Mankato in November 2009 provides a good example:
"We must reduce the cost of doing business. What does that mean? That means reducing taxes, yes, but it also means eliminating the excessive and onerous regulation and restriction that frustrates people from doing business in this state. . . You bring down the cost of doing business in this state, and you stop this exodus from the state. I remember when I grew up here in the 70's, 60's and 70's that Minnesota was a destination point for new opportunity, for new business. This was the place where the smartest and the brightest came to go to school and they might have come from warmer climates, but once they got here they didn't want to leave. . . That was the 70's, the 80's. Now guess what, I said it earlier, we're #50 in state to state migration. People are not coming here the way they did, we've become a departure zone."
Tom Emmer on the Issues
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Emmer's running mate, Annette Meeks, led the Freedom Foundation of Minnesota in February 2010 when they released a report repeating the claim that people were fleeing the state. While the report makes for edifying reading, it's not for the reasons they seem to think so. Their conclusion is that Minnesota is losing residents and tax revenue to lower-tax states (like Arizona and Florida) but they overstate the problem and then miss the reasons why that problem exists.

1) Minnesota is not a "departure zone"

First, this claim that Minnesota is #50 in state-to-state migration would be a huge concern - if it were true. Of course it isn't. Minnesota does lag behind a lot of states as a "magnet" state (percentage of state population that moved from elsewhere), but it is highly "sticky" (percentage of people who were born in a state and still live there.) In Minnesota, 2/3rds of the population that is born here continues to live here, and only 30% of the current population comes from other states.

Minnesota ranks in the middle of the pack nationally for state-to-state migration numbers. We gain domestic in-migrants at a slightly lower rate than we lose out-migrants (whether you measure number of taxpayers or number of exemptions) This is according to the single academic citation in the Freedom Foundation report, "The County-to-County Migration of Taxpayers and their Incomes 1995-2006" (page 3, Table 1a and page 4, Table 1b.)

This is consistent with national and regional trends - the Midwest and Northeast are losing population to the South and West. Shockingly, the two states where Minnesota out-migrants are going are balmy Florida and Arizona, accounting for 78.2% of the lost income from 1995-2007. However, Minnesota fares very well regionally, with nearly every state in the region sending in-migrants to Minnesota. Don't believe me? Here's the Freedom Foundation's own numbers:
Top 10 States Sending In-Migrants to Minnesota (Net # of Taxpayers 1995-2007, Table 3A)
1. Iowa 9,634
2. North Dakota 7,620
3. Illinois 6,311
4. Wisconsin 5,219
5. Michigan 4,490
6. Nebraska 1,833
7. Ohio 1,646
8. Indiana 1,576
9. South Dakota 1,322
10. New Jersey 1,140
2) Tax increases are not correlated with out-migration in Minnesota

This notion of people voting with their feet, pulling a Galt, and taking their businesses and jobs with them has gained a cultural currency simply through repetition. It's true that the relatively small net loss of state-to-state migrants is a recent problem. It's also worth quoting the Freedom Foundation's report at length on this question:
Out-migration represents a relatively recent development for Minnesota. Between 1991 and 2001, Minnesota gained 104,295 residents from other states, according to the U.S. Department of Commerce’s Census Bureau. In 2002, however, the trend abruptly reversed. Between 2002 and 2009, Minnesota lost 54,113 residents to other states. Clearly Minnesota now has a severe out-migration problem (p. 1).
Assigning causality to migration trends is incredibly difficult. Every relocation decision is made for highly individual reasons, including some that I will discuss in a moment. But as a question of correlation, it's important to note that Minnesota's "relatively recent problem" corresponds exactly to the term of Governor Pawlenty. And that over that same period 2002-2009, the tax burden on Minnesotans has remained flat, and is significantly lower than it was in the 1990's when Minnesota experienced population growth (See "2009 Minnesota Tax Incidence Study," Figure E-1, p. 3)

3) Minnesota's success at attracting migrants depends on education and environment

The Freedom Foundation "examines" five factors they think influence migration decisions, taxes, percent of union membership, population density, cost of housing, and weather. But this selection of factors excludes a number of relocation factors that favor Minnesota and includes factors that seem completely arbitrary (union membership.) Consider this 2006 study (cited by the "County-to-County Migration.." study used by the Freedom Foundation) from the
Journal of Regional Analysis and Policy.

In it, the authors analyze a number of factors that might influence state-to-state population migration and begins with the following caution: "omission of non-economic factors from an empirical migration analysis . . . generally compromises the integrity of that analysis." The authors then use data from 2000-2004 to examine a number of factors that I think reveal a recipe that explains how Minnesota has recently lost in-migrants and how we might regain them.
Factors that should increase Minnesota's net in-migration
Higher Per-Capita Spending on Public Education
Higher Median Family Income
Higher Employment Growth Rate
Lower Pollution, an environment of "clean air and water"

Factors that should decrease Minnesota's net in-migration
Higher State Income Tax
Higher Cost of Living
Minnesota has relatively high income tax rates, but one big factor in Minnesota's attractiveness to in-migrants has always been its investment in education. While relative tax burdens (measured by tax incidence) have been declining, we've also seen education funding fail to keep pace with inflation. Minnesota is at risk of losing the positive amenities that have attracted in-migrants and that have maintained Minnesota's unemployment rate well below the national average.

The reality of Minnesota's migration problem is multifaceted and complicated. The simplistic story of "high taxes = people are fleeing" may play well to the base, but it's bad for Minnesota. A thoughtful response to migration requires investment in the assets that attract migrants to our state. These investments are the opposite of Emmer's prescription for job growth in this state, which holds that government can only strangle job growth and never encourage it.

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