A Perspective on the “Local Price of All Government” in Minnesota

A look at government’s “all in” fiscal footprint -- local, state, and federal -- at the county level.

 

Our recently released “Price of Local Government” issue brief – now an annual report – offers several perspectives on Minnesota’s fiscal geography and the claim local governments have on their residents’ income.  But it made us wonder: if we tacked on support for state and federal government as well, what would each county’s “Local Price of All Government” look like?

 We offer perspective in the accompanying ‘Local Price of All Government” map, constructed as follows:

  • The baseline is our “Price of Local Government” which includes all county, city, township, school, and Met Council own-source revenues.
  • To this we add state government revenues that can be tracked by county: total individual income tax liabilities, the state general property tax levy, and sales taxes (including the general sales and use tax, the liquor and car rental taxes, the sales and use tax on mobile homes, and the in-lieu tax on lottery tickets).
  • Finally we add federal government revenues that can be tracked by county, including the FICA (Social Security and Medicare) payments employees make, total federal income tax liabilities, and other taxes reported on Form 1040[1]
  • Our denominator – county cash income – equals total county personal income less elements that can’t be used to pay taxes and fees (such as the value of Medicaid benefits) plus income that is not included in personal income but can be and is used for this purpose (e.g. retirement benefits and capital gains).  We prefer to use this measure since it better reflects income actually available to pay the taxes, fees, and other revenues that finance government.

Data limitations mean that some notable revenue streams are missing from this analysis.  State corporate income taxes are not included (Minnesota House Research estimates collections on a county basis but data is not available for 2013.)  Limitations also force us to exclude the state excise taxes, motor vehicle sales taxes, health care taxes, and all state fees and charges including tuition payments.  With respect to federal taxation, we have no data on corporate income and excise taxes and any fees and charges. Our analysis does capture over 70% of all state taxes and over 60% of all state own source revenues.

Local Price of All Government, Cash Income Basis, by County, 2013

With these limitations in mind here are some findings:

  • Looking to visit a county with the lowest “all-in” government claim on county cash income?  Put Norman County (15.2%) high on your list.  Conversely, Hennepin County is the place where government’s combined footprint is the greatest, claiming nearly one-third of county cash income (32.4%).
  • Unsurprisingly, including progressive state income taxes and highly progressive federal income taxes has a much bigger impact on the “all in” price of government in some counties than others.  For example, Olmsted County has a slightly below average Price of Local Government (4.7% of cash income).  But when state and federal collections are included, the Local Price of All Government jumps to 29.3% – 6.2 times that of just local government.  Contrast that with Lincoln County, where the relatively high Price of Local Government (6.0% of cash income) jumps only 3.0 times to 18.0% when adding state and federal taxes.
  • One potential indicator of fiscal stress within a county is large amounts of personal income – which measures economic activity – coming from income support programs.  That potential for fiscal stress is likely amplified in counties where progressive state and federal income tax collections are modest.  Mahnomen, Wadena, and Aitkin Counties are examples where such conditions exist.

One theme clearly permeates this analysis: the impact that federal taxes have on the price of government felt by Minnesotans.  When looking at all taxes Minnesotans pay to all levels of government (including the taxes that we can’t allocate to the county level in this analysis), about half of those revenues go to the federal government in the form of income and FICA taxes.  State discussions about tax policy generally create a firewall around state and local taxation – ignoring the interaction and combined effects with federal taxation.  In some respects that is understandable – state legislators have no control over federal tax policy.  But it’s always worth remembering taxpayers themselves are unlikely to draw such a clear distinction in evaluating their tax burdens.

Endnotes
  • 1 Includes taxes from recapture of certain prior-year credits, tax applicable to individual retirement arrangements (IRA's), social security taxes on self-employment income and on certain tip income, advanced earned income payments, household employment taxes, and certain "other taxes" listed in the Form 1040 instructions.