Press "Enter" to skip to content

Debunked: The Myth of Trickle Down Economics?

Huffington Post had a very interesting read yesterday.

Mark Dayton, governor of Minnesota since 2011, proves once and for all that trickle down economics does not work. Unlike his precedent Tim Pawlenty, a Conservative who prides himself in having never raised state taxes during his term, Dayton increased the state income tax from 7.85 to 9.85 percent on individuals earning over $150,000 (or over $250,000 for couples who file jointly). Moreover, Dayton approved to raise the state’s minimum wage from $6.15 (for large employers) to $9.50 per hour by 2018. Dayton’s bold moves attracted concerns and criticism from many Republicans. Quoting Rep. Mark Uglem, for instance, “the job creators, the big corporations, the small corporations, they will leave. It’s all dollars and sense to them”. In other words, Republicans anticipated rising costs that firms in Minnesota must incur in both income tax and wage will slow down the economy and decrease employment opportunities.

Quite contrary to the concern among financial Conservatives, Minnesota’s economy fared very well. Between 2011 and 2015, Dayton successfully added 172,000 new jobs, that is 165,800 more jobs in Dayton’s first term than Pawlenty added in both of his terms combined. According to Bureau of Labor Statistics, Minnesota now boasts the 5th-lowest unemployment rate (3.6%) in the U.S. Whereas Dayton inherited from Pawlenty a deficit of $6.2 billion, he successfully managed to turn the situation and achieved a 1.5 billion budget surplus since this January. Despite the initial worry that business will flee the state, Minnesota actually became the hub of economic opportunities, becoming the 9th best state for business according to Forbes . Thanks to the rise in minimum wage, Minnesota also has median income that exceeds the U.S average by $8,000 today.

So, the case of Minnesota clearly shows that progressive income tax and raising minimum wage are indeed more effective in promoting economic growth.

One Comment

  1. Not only has Minnesota fared well, but next door Wisconsin under Gov. Walker has not. Prior to the past few years, the economies of the two states performed in parallel. Since Walker’s union-busting, education-cutting and anti-welfare policies were put in place, WI has not done well. So this also undermines the idea that low taxes are not enough to offset policies that privilege business over the average citizen. See the EconBrowser blog for comparisons, with a particular focus on Wisconsin. (Here’s a post that updates the comparison, after a Republican-oriented blog claimed it was a hash job. It wasn’t.) It’s a nice complement to Huffington’s focus on MN.

Comments are closed.