The Legislative session begins....and Pawlenty looks for answers. The Governor called for a "Government Reform Summit" in which he called on a number of leaders to look for solutions to a massive budget problem.
But there is always one problem with a Governor Pawlenty looking for solutions....you cannot mention solutions that delve into his restricted areas.
During this "summit", working groups were arranged:
The gathering was anything but usual. As leaders from a wide array of professions, in health care, business, education and government, put their ideas at helping solve the budget crisis to paper. After an initial group gathering to hear from the governor and his budget director, the 40-member panel broke into four groups.
Now the four groups weren't labeled but I suspect that if one of the four had been labeled "raising tax revenue", they were probably banished to the basement and told to come back after closing time.
Governor Pawlenty simply doesn't understand the meaning of "all options on the table".....it's better described as "all of MY options on the table".
Pawlenty likes to use the analogy that government has to live within its budget, just like the average Minnesota family. But the family budget he envisions doesn't exist in the real world.
Here is the budget analogy our Governor sees:
The typical Pawlenty Minnesota family has lived since 2002 on a family income that has never seen a raise (no taxes); that has used up its family inheritance to pay the mortgage up to now (tobacco endowment and surplus); has siphoned off telephone, electricity, and water bills from the neighbors (LGA cuts forcing increased local taxes); got a handout from friends to pay for the family vehicles (transportation bill override by Legislature); and seems to assume that something miraculous will happen to pay for the kids college education (stagnant funding for K-12 and cuts coupled with higher tuition for post-secondary ed).
That is not typical family budgeting and it is not good management for state budgeting.
Let's take a hard look at the main budget problem. Pawlenty keeps looking at state revenue as a spending problem, even as he watches state revenue decline precipitously. Instead of looking to the budget as a chopping block, how about, for once, looking at the basics behind revenue collection. Here is the crux of the matter. We are living in a service economy -- our current tax structure is based on a consumption economy. Consumption economies tend to have reverse revenues in economic downturns because the consumer has to cut back. Services will also decline but not to the same extent and taxing services allows for a broader tax base.
Let's look a little deeper into this:
Back in 2004, Iowa did a sales tax study to make revenue collections more efficient. Here is one of their findings:
The part of the U.S. economy that is growing the fastest is the services sector, and the consumption of services is growing faster than the consumption of goods. As a result, the revenue from a state sales tax that fails to include a broad array of services in its definition of taxable sales does not keep up with economic growth and thus does not keep up with the normal rise in the cost of state and local government over time.
This is especially true during economic downturns:
Broadening the base of the sales tax to include most services can improve revenue stability in two ways. First, it lessens the chance that sales tax rates or the rates on other taxes will have to be raised frequently to compensate for the eroding base of the sales tax. Second, there is evidence that a broad sales tax is more stable than a sales tax with a narrower base over the course of business cycles; revenues from a broad-base sales tax fall less in economic downturns. This lower volatility lessens the chance that other types of taxes, including corporate income taxes or property taxes that businesses pay, will have to be raised during fiscal crises to make up for flagging revenues.
We have serious budget problems. Most certainly. But when we talk about putting all options on the table, let's be serious about that as well.
