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MN2020 - Minnesota Surpasses Wisconsin in New Business Filings
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Minnesota Surpasses Wisconsin in New Business Filings

January 27, 2014 By Jeff Van Wychen, Fellow and Director of Tax Policy & Analysis

Minnesota and Wisconsin are frequently held up for comparison,* given similarities between the two states in terms of geography, climate, economy, and population size and ethnicity. As noted in a recent Minnesota 2020 article, Minnesota has been getting the better of these comparisons in recent years, with superior job, income, and GDP growth relative to our neighbors to the east. Now, thanks to information from the Minnesota Office of the Secretary of State (OSS) and the Wisconsin Department of Financial Institutions (WDFI), it is possible to compare these two states on one more metric: the number of new business filings.

New business filings are a measure of entrepreneurs’ willingness to take a risk on new ventures and are indirectly an indicator of a state’s ability to foster opportunities for economic growth. By themselves, new filings are only a partial measure of the quality of a state’s business climate, but in concert with other measures can help provide a more complete picture of economic and business conditions within a state.

According to information from the OSS, there were over 58,000 new business filings in Minnesota in 2013. However, this total includes trademark, assumed name, and reservation of name filings—information not reported by the WDFI. For purposes of this analysis, these three categories will be excluded from the Minnesota filings in order to provide an apples-to-apples comparison between the two states.

Excluding these three categories, Minnesota had 41,694 new business filings in 2013, while Wisconsin had 37,145. This would be the third consecutive year in which Minnesota surpassed Wisconsin in new filings. The following chart shows the cumulative monthly growth in new business filings in both states since January 1, 2011.

Minnesota only slightly outpaced Wisconsin in new business filings in 2011; in fact, in three of twelve months of 2011, Wisconsin exceeded Minnesota in new business filings. However, beginning in early 2012 the gap between Minnesota and Wisconsin began to widen. Only once in the last 24 months (January 2012 to December 2013) did Wisconsin filings outnumber Minnesota; over this two year period, Minnesota averaged approximately 500 (16 percent) more new business filings per month than Wisconsin.

The contrast between the two states is even more striking when we examine the number of new business filings per million population. In each of the last three years, Minnesota averaged 7,553 new filings per million population, 22 percent more than Wisconsin, which averaged just 6,190.

Minnesota’s domination of Wisconsin in terms of new business filings is not restricted to just a few categories of businesses, but extends across all major categories of business structures. In both states, approximately 98 percent of all new filings fell into one of five categories: domestic business corporations, domestic limited liability companies, domestic non-profit corporations, foreign (out-of-state) business corporations, and foreign limited liability companies. In each of these five categories, the number of new filings in Minnesota exceeded the number in Wisconsin over the course of the last five years—both in absolute numbers and on a per capita basis.

Conservatives may argue that Minnesota’s higher rate of new business filings relative to Wisconsin is the result of the austere budget that anti-tax legislators in Minnesota pushed through over the objections of Governor Dayton after the 2011 state government shutdown. However, upon close scrutiny, the logic of this argument falls flat. If prosperity in general and new business filings in particular are a function of conservative state budgeting, Wisconsin’s performance should be surpassing Minnesota’s, since the budget passed in Wisconsin in 2011 under Governor Scott Walker and a conservative dominated Senate and Assembly was more austere than anything seen Minnesota.

The more rapid expansion in new business filings in Minnesota relative to Wisconsin—in concert with Minnesota’s superior rate of growth in jobs, personal income, median household income, and GDP and consistently lower rate of unemployment—provides ample evidence that Minnesota is currently outperforming Wisconsin in nearly every category that matters. This reality is a conundrum for conservatives in both states, who posited that Wisconsin’s more austere budget practices and anti-union policies would produce a prosperous state. Perhaps it’s time to reconsider—if not abandon—this agenda.

 

*The relative merits of the respective fiscal courses pursued by state policymakers in Minnesota and Wisconsin was the focus of a forum sponsored by the Humphrey School of Public Affairs last fall that featured the Wisconsin and Minnesota revenue commissioners. Minnesota 2020’s take on this event was summarized in an October 9 Hindsight post.

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10 Comments:

  • Mike Downing says:

    February 3, 2014 at 1:33 pm

    MN was recently ranked #4 behind CA, NY & NJ on taxes. However, this article understated our actual sales tax (should have been 7.125%) and did not include the increased income tax. Gov Dayton and the DFL Legislature are hard at work to become #3, #2 or even #1 in taxes.

    What effect will these increased taxes have on business formation or business migration to other states?

    • Jeff Van Wychen says:

      February 3, 2014 at 11:23 pm

      While some tax ranking reports have Minnesota in the top 10, I haven’t seen any credible studies that have us as #4—before or after the 2013 tax act.  Furthermore, if we look beyond taxes to total revenue (a better measure of the overall size of government) as a percentage of statewide personal income, Minnesota ranks 25th among the 50 states.  (The MN Dept. of Revenue makes a strong case that taxes and revenue as a percent of personal income—as opposed to per capita—is superior as a way of gauging the overall size of government.)

      Apart from all this, in gauging the health of a state’s economy, it makes more sense to look at outcomes (per capita and median income, job growth, GDP growth, etc.) rather than inputs (such as taxes).  Based on outcomes, MN is doing well.

    • Dan Conner says:

      February 4, 2014 at 11:17 am

      So now “the bottom line” is not considered in the assessment of tax policy.  To read one decrying a tax policy that is leading to economical prosperity is ignorant or selfish.  Neither of those very flattering.  It’s silly hearing one complain about ranking of taxing when an ecomic unit is prospering is silly.  Instead, the policy of increasing taxes merits further increasing to see if more economic growth can be generated.

      Sorry, but the whining of taxes doesn’t seem justified by the economy or acceptable behavior.

      • Mike Downing says:

        February 4, 2014 at 2:30 pm

        There is a famous quote that is pertinent to this discussion: “Taxes change people’s behavior”. Taxes, business climate and winter climate are among the reasons that businesses and people continue to migrate from high tax states to Texas & Florida.

        Perhaps one other reason for the migration is that successful people can escape from the bitter, angry and envious liberal progressives that reside in the high tax states to Southern hospitality in the low tax states in the South and Southeast. Their charitable giving can be increased due to lower taxes and they can chose where their money given to charity goes rather than have politicians fight over their hard earned money and misuse it.

        • Ronald Leurquin says:

          February 4, 2014 at 4:07 pm

          Mike
          Your well known on here for your no tax/lower tax stance.
          If MN is such a high tax hell and people and companies are fleeing so much, why is it you stay?
          I dont personally see the fleeing of business from MN, but am open to examples
          Yes, people can easily relocate to where ever they want, but I dont see that much either

          Personally I dont live in MN because of its low taxes and bright sunny weather
          The quality of life here is what I’m here for, and the need for real seasons of the year (palm trees in bloom in January is just wrong)

          • Mike Downing says:

            February 4, 2014 at 5:47 pm

            Ronald, I am in fact a FL resident by Florida law. However, I still pay MN taxes since our grandchildren live here and we live in MN >6 months and 1 day.

            I suggest you study the 2010 census and you will see that both Texas and Florida gained in population and gained seats in Congress from high tax states in the Northeast. MN was close to losing a CD seat but retained all 8 CDs from the 2010 census. However, MN will likely lose a CD seat after the 2020 census.

            Texas and Florida are indeed creating jobs and creating companies based on their much better business climate and winter climate. You may not like it but it is a fact.

            • Jeff Van Wychen, MN 2020 says:

              February 4, 2014 at 6:11 pm

              Mike:
              To bring this discussion full circle back to a more apples-to-applies comparison—MN and WI—MN is gaining population more rapidly than WI.  One more instance in which relatively high tax MN is doing better than our neighbors to the east.

            • Dan Conner says:

              April 25, 2014 at 5:56 pm

              Mike, I think you need to acquaint yourself with residency laws of the IRS.  You are a Minnesota resident if you spend 6 months and 1 day in Minnesota, but good try.  By the way, Minnesota growth in business and jobs beat Florida, but again, good try.  Frankly, I think you are rationalizing, not using facts.

        • Dan Conner says:

          April 25, 2014 at 5:52 pm

          Well, your famous quote might also have said, “Income changes peoples’ behavior.”  Income of the middle-class and poor have remained stagnant, while the top percent selfishly hogged 93% of ALL increases in come over the last many years.  And while you might only care about changing the behavior of the top 1% by giving them more money, I am not.  More income has to be paid to the poor and middle class.  Everyone needs to share in the prosperity of the country.  Not just the ones who wait for their dividend checks.  Mike, your ridiculous statement about businesses migrating the Texas and Florida is belied by the facts.  Minnesota ranks among the fastest growing economies in the country, and without ONE DROP OF OIL.  Once our nation turns from consuming fossil fuels Minnesota will leave Texas in the rear-view mirror and they will reduce their Government bribery.

          Mike, maybe you should escape from these people as well.  I think Minnesota would only proportionately do better after you leave.  And there are many that can refute you allegation of Southern hospitality.  Your silly allegation of prosperity in the South is refuted by the fact they represent the poorest states in our country.  With oppressive and controlling laws dictating personal behavior and morals.  I doubt their charitable spirit is lit by lower taxes.  Instead, I think it reinforces selfishness and spirit of community.  Mike, I think one should have no illusion that your charity started and stopped at your home.