Ramstad: Think old people are leaving Minnesota? Think again

Whenever I write about Minnesota's economic challenges, the most frequent criticism I get from readers is that I don't complain enough about the state's high tax rates. Rich, old people are leaving because of them, or soon will, they tell me.

Complaining about taxes is habitual and natural. However, they rarely are the first reason that people, especially retirees, leave Minnesota.

That perception, however, got a boost last year when med-tech executive Howard Root wrote a highly read opinion essay for the Star Tribune explaining his decision to retire early and move out. His reasons, he wrote, "start, but don't end, with taxes."

There's just one problem with this mass belief about retirees: They're moving to Minnesota like crazy.

From 2020 to 2022, the latest year for which age-related census data is available, twice as many people over age 65 moved to Minnesota as people ages 18 to 65 moved out of Minnesota.

Mark Haveman, who leads the Minnesota Center for Fiscal Excellence, the nonprofit organization in St. Paul supported by business and respected by government leaders, made that discovery a few months ago. I double-checked his data this week.

After the 2020 census, 59,732 people older than 65 moved to Minnesota and 27,406 people in the working-age range of 18 to 65 moved away by summer 2022. That's a net gain of 32,326 adults.

The under-18 population fell by nearly 22,000 in that time, tempering the state's overall population gain to around 10,000.

That's a marginal addition for a state of 5.7 million over two years, and preliminary numbers for 2023 show a net increase that was not much bigger. As I've noted often, Minnesota's population is growing more slowly than anytime in the state's history, and more slowly than demographers thought it would before the pandemic.

But we should stop worrying about rich people moving to Florida and concentrate on Minnesota's real problem: The net loss of people younger than 65 is troubling.

As Haveman put it, "That's the workforce problem right there."

Minnesota is feeling extreme effects from labor scarcity, shaped by the exit of baby boomers into retirement and the restrictions on legal immigration. Those conditions aren't being offset by the record flow of people entering the country illegally at the nation's southern border, even as signs grow that those immigrants may be helping the national employment picture.

Haveman tracks population flows because of their prospective effect on state government revenue, which relies heavily on income taxes from high-earning individuals and businesses.

"It's the in-migration where the energies should be focused," Haveman said. "I get that people are concerned about losing high net-worth people to Florida. But for the state's economy, we've got to be looking at the other side of the road."

He also found that people moving to Minnesota in 2021 tended to have incomes that were below the state's average, though he was reluctant to draw a conclusion about that from a single year's data.

We'll see later this year, when more details about the Census Bureau's 2023 survey come out, whether the number of people moving to Minnesota remained heavily tilted to retirees. In the past, retirees tended to have lower incomes.

Today's retirees are wealthier than other American generations. They could prop up the economy and tax revenue in the years ahead, though Minnesota legislators did just give most of them a break from paying tax on Social Security.

Now, I don't like high tax rates anymore than my readers do. However, Minnesota has deductions and credits that make its effective rates more competitive than nominal rates suggest. And there's another reason I don't harp about tax rates as much as some of you think I should.

It's that Minnesota has been a high-tax state since the 1930s. The state had a 10% income tax bracket starting in 1937, higher than its current top rate of 9.85%. For single people, it started at $20,000, which is around $400,000 in today's dollars. Today's top rate starts for singles earning about $183,000.

The state's real squeeze on high earners was in the 1970s and 1980s, which maxed out with a 17% rate on people earning more than $40,000, or about $200,000 in today's dollars. The state's population and GDP grew quickly then anyway.

The Minnesota Private Business Council recently proposed eliminating the state's lowest income tax rate of 5.35%. It applies to individuals earning less than $40,000 and married couples under $50,000. The idea is distinctive coming from a right-leaning organization. Such groups typically promote tax cuts for higher-income people.

"It's a solution both sides of the political divide ought to get behind," Jim Schultz, the group's president, said. He added that such a move should attract more working-age people to Minnesota.

The impact may not be that great, though. Democrats in power at the statehouse effectively wiped out income taxes on the state's lowest earners, at least those with families, with the child tax credit they approved last year.