New data from the U.S. Census Bureau shows that in 2007 Minnesota’s household income fell relative to the national average, while poverty increased. In fact, for the first time in over a decade Minnesota has fallen out of the top ten states in the nation in median household income.
A Minnesota 2020 report released last June, Minnesota’s Slip Toward Mediocrity: Less Investment, Less Return, focused on the decline in Minnesota’s public investment and economic performance relative to other states since 2002. As noted in the report, Minnesota had the third highest median household income in the nation in 2002; by 2006, we had slipped to 8th place.
Based on the new information from the Census Bureau, Minnesota’s rank on median household income has dipped further to 11th in 2007. The last time Minnesota ranked outside of the “top ten” in the nation in median household income was 1995, when the rank was also 11th.
However, while Minnesota’s median household rank was the same in 1995 and 2007, there is a significant difference between the two years. In 1995, Minnesota was in the midst of a trend in which the state’s income rank was improving from year to year; in 2007, the trend appears to be going in the opposite direction, with the state’s rank deteriorating.
Minnesota’s rank in terms of median household income peaked early in the current decade, when Minnesota was among the top five states in the nation for four consecutive years. Since then, however, Minnesota has been going downhill.
Minnesota’s median household income has also deteriorated relative to the national average. In 2002, the state’s median household income was 28.8 percent above the national average. By 2007, it was only 15.6 percent above the national average.
From 2002 to 2007, Minnesota’s median household income in nominal dollars (i.e., unadjusted for inflation) grew from $54,622 to $58,058, an increase of 6.3 percent. However, inflation as measured by the consumer price index over the same period was 15.3 percent, meaning that the real purchasing power of the typical Minnesota household declined. In inflation-adjusted dollars, Minnesota median household income dropped by 7.8 percent from 2002 to 2007. Over the same period, U.S. median household income grew by 18.4 percent in nominal dollars and by 2.8 percent after adjusting for inflation.
As reported in Minnesota’s Slip Toward Mediocrity, Minnesota’s poverty rate fell from the second lowest in the nation in 2002 to the fifth lowest in 2006. From 2006 to 2007, Minnesota’s poverty rate continued to increase relative to other states, as our ranking slid from 5th lowest to 9th lowest. While the national poverty rate has remained essentially flat at just over 12 percent from 2002 to 2007, Minnesota’s poverty rate has increased from 6.5 percent to 9.3 percent.
In 2002, Minnesota’s poverty rate was 5.6 percent below the national average. By 2007, it was only 3.2 percent below the national average.
As reported in Minnesota’s Slip Toward Mediocrity, our states is by no means an economic basket case. The state’s median household income is still above the national average and our poverty rate is still below the national average.
However, the North Star no longer shines with the luster it once did. The degree to which Minnesota outperforms other states in terms of household income and poverty rates has clearly diminished. In addition, Minnesota’s unemployment rate has recently surpassed the national average, while it has ranked among the bottom ten states in the nation in the rate of job growth in each of the last three years.
“No new tax” advocates have no explanation that fully accounts for the slippage in Minnesota’s economic performance during the period that their policies have held sway at the State Capitol. Progressives, on the other hand, do have an explanation.
As a result of the “no new tax” policy, public investment in Minnesota has declined. Through state aid cuts, state government has shifted most of the state’s fiscal problems on to local governments and local property taxpayers. Collectively the real per capita revenue of Minnesota counties, cities, and school districts has declined by nine percent since 2003-thereby forcing cuts in K-12 education, public safety, local infrastructure, and human services at the same time that property taxes were increasing.
The new income and poverty data from the Census Bureau delivers Minnesotans another sobering wake-up call. The policy of mindless opposition to any and all increases in public revenue which has lead to deep and ongoing cuts in critical public investments has failed. It is time for policymakers to focus on smart public investments; this is a strategy that has worked well for Minnesota in the past and can work again in the future.