In the 1960s, local districts and towns in the Twin Cities region offered competing tax breaks to lure in new businesses, diminishing their revenues and depleting their social services in an effort to steal jobs from elsewhere within the area. In 1971, the region came up with an ingenious plan that would help halt this race to the bottom, and also address widening inequality. The Minnesota state legislature passed a law requiring all of the region’s local governments—in Minneapolis and St. Paul and throughout their ring of suburbs—to contribute almost half of the growth in their commercial tax revenues to a regional pool, from which the money would be distributed to tax-poor areas. Today, business taxes are used to enrich some of the region’s poorest communities.
Never before had such a plan—known as “fiscal equalization”—been tried at the metropolitan level. “In a typical U.S. metro, the disparities between the poor and rich areas are dramatic, because well-off suburbs don’t share the wealth they build,” says Bruce Katz, the director of the Metropolitan Policy Program at the Brookings Institution. But for generations now, the Twin Cities’ downtown area, inner-ring neighborhoods, and tony suburbs have shared in the metro’s commercial success. By spreading the wealth to its poorest neighborhoods, the metro area provides more-equal services in low-income places, and keeps quality of life high just about everywhere.
... The Twin Cities’ housing and tax-sharing policies have resulted in lots of good neighborhoods with good schools that are affordable for young graduates and remain nice to live in even as their paychecks rise. This, in turn, has nurtured a deep bench of 30- and 40-something managers, who support the growth of large companies, and whose taxes flow to poorer neighborhoods, where families have relatively good odds of moving into the middle class.
My immediate reaction to this plan was negative. "I'm a libertarian! I don't believe in making people share the results of their hard work and effort!" Then I stopped to actually think about it. Local governments are, obviously, different from people.
A metropolitan area is more than the sum of its constituent parts. Good suburbs reinforce each other and the city's urban core. Businesses can be located in one suburb, but draw employees from all over the metropolitan area. In a very real sense, the success of each suburb—or city—depends both on its own decisions and on the decisions, and general health, of the surrounding suburbs.
I think it makes a lot of sense to have the city and its suburbs sharing tax revenue with each other. They each contribute to the local pool of welfare, with businesses and employees constantly crisscrossing boundaries as they live, work, and play each day. It seems to make good sense to make sure that the entire metropolitan area is economically healthy, rather than having some areas that are wealthy just because a business is headquartered there instead of five miles away, inside a different municipal boundary.
I'm now interested in having Wisconsin apply a local version of this Minnesotan law.