Neither side has it totally right, and each is choosing one side of an economic principle to suit an ideological perspective.

The principle is this: Closing a wide budget gap always forces hard choices, and both spending cuts and revenue increases will contract the economy in the short run. Budget cuts are the more damaging option, in our view, because they have a greater immediate impact on households already spending all they earn, while people with plenty of income typically spend less than they earn.

In other words, public-sector budget cuts are more likely to reduce consumption that drives the economy. Tax increases on high incomes are more likely to decrease savings and investment. And an already shrinking economy calls for more demand before more investment.

But economic principles aside, no policy-maker wants to be branded — even with a half-truth — as increasing unemployment during a recession.

As an economist and a retired business owner affiliated with Growth & Justice, a progressive think tank, we can't resolve the political dilemma. However, we can provide some context for the budget decision by applying evidence and analysis to discover how a specific tax proposal might actually affect Minnesota's economy, and especially small business.

An early Senate bill proposed a new 8.5 percent state income tax bracket that would affect filers who earn more than $250,000. Our study suggests this fourth-tier bracket would result in higher taxes for 60,400 filers — 2.6 percent of all Minnesota taxpayers. And about half this group derives at least some income from ownership in a small business.

On average, each affected taxpayer would pay a net additional $1,406 after deducting state taxes on their federal returns. That's hardly a make-or-break sum for most high-income households who are running a small business. But remember, our question was about how the tax increase might impact the overall economy.

When taxes go up on high earners, they will respond in a variety of ways. At one end, they might reduce their savings and/or consumption only as much as necessary. At the other extreme, if they own businesses, they might reduce their operations in Minnesota, resulting in job loss. When that happens, it's no longer the "rich" who are paying for the tax increase.

To calculate how much job loss might actually occur, we drew from the available studies on "tax elasticity" that estimate the impact of tax changes on economic activity.

We found the range of negative impact from a new fourth tier would translate into a loss of between 907 and 5,443 jobs (out of about 2.67 million statewide), corresponding to between $36.7 million and $220 million in payroll. Even the best estimating methods can't provide a precise answer to our question, so these results should be used with caution. Still, at the upper extreme, that's far less than 1 percent of Minnesotans' total annual income.

Assuming all other things are held constant, the tax proposal we studied would raise $121.5 million in annual gross revenue for the state.

Since it appears that Minnesota could lose payroll and jobs, should we dismiss a fourth tier as a bad idea? The tradeoff is not that simple. That's because any harm from higher taxes should be weighed against the potentially greater negative effects of spending reductions.

For example, state reductions to local government aid could eliminate about 3,000 city and county jobs. Reduced transfer payments or tax increases affecting middle- and lower-income households have been shown to reduce local consumption of goods and services. Other spending cuts affecting private contractors and nonprofit service providers would also directly impact consumption and employment. And reduced public investment in education, health care and transportation can increase business costs and reduce productivity over the long term.

Meanwhile, the benefits of holding the line on taxes, or even cutting them, trickle out more slowly, with some of the money going to savings or to pay off past consumption.

Bottom line, Minnesota must close its budget shortfall using all available methods, and no resolution — whether it relies more on revenue increases or spending cuts — will be without some net negative economic impact. As we perform this balancing act, it's important for liberals to acknowledge that taxes do distort markets. And conservatives must acknowledge that public spending has a more immediate positive economic impact than spending reductions or tax cuts.

In crafting a budget, we urge all parties to move away from ideological generalizations about taxes and spending and carefully weigh the economic costs — using real evidence and available analytical tools. The facts won't make the choices any less painful, but they will make the decision process less polarized and more enlightened.

Marsha Blumenthal is Professor Emerita of Economics at the University of St. Thomas. Charlie Quimby is a former small business owner who still has a complicated tax return. A policy brief by Blumenthal and Quimby on the estimated economic impact of a fourth-tier increase is available at www.growthandjustice.org.