ST. PAUL LEGAL LEDGER CAPITOL REPORT
Yes, that means raising revenue—i.e., taxes, because the facts matter
We’ve all heard people say, in jest, that their minds are made up and that they don’t want to be confused with the facts.
But we should demand at least a little more open-mindedness and evidence-based decision-making from our elected legislators, especially in times of crisis.
And that’s exactly what we have as the 2010 legislative session staggers toward adjournment with an unexpectedly huge and crushing budget shortage.
Here in one handy place, are some pertinent facts for “taxophobic” legislators and their constituents. Let’s call it “Eleven Top Reasons to Raise State Revenue during a Desperate and Historic Revenue Shortage.”
1. We have a desperate and historic shortage of revenue, suddenly worse than we thought. The Minnesota Supreme Court’s decision that Gov. Tim Pawlenty’s unallotment last summer was illegal leaves a $3 billion hole for the year remaining in the current budget period, and the February forecast anticipates almost a $6 billion hole in the 2012-2013 budget. This is an unprecedented shortage of roughly 20 percent of our common funds, and this emergency cries out for a return to balance and ending the cuts-and-shifts strategy of the last decade.
2. We do need a top-to-bottom review and redesign of state and local government. But we also must accept that fair and sufficient taxes and wise public investments are good for business and job growth. Without first-rate education systems and public works infrastructure, the quality of life in our communities degenerates, purchasing power declines—especially for struggling middle-income and lower-income folks—and business suffers. It is that simple.
3. Almost everything that our better-than-average governments in Minnesota buy with our taxes—hospitals, water and sewer systems, schools and colleges, roads and transit, police and fire protection, and health care for the elderly—is comparable in value to many of the things people buy privately with their money.
4. We’re already No. 1 in cutting. Since 1998 and over more than a decade under the prevailing no-new-taxes dogma, Minnesota has cut its taxes, especially for high-income folks at the top, and reduced its investment in public goods that benefit a broad base of our citizens. According to rankings calculated by the group Minnesota 2020, drawn from Census Bureau statistics, Minnesota has cut more as a percentage of its income and budgets than any other state.
5. We’re increasingly alone. Minnesota actually is among a shrinking minority of states refusing to employ a balanced approach. Almost 30 of the 50 states have raised taxes to address the shortfalls brought on by the Wall Street collapse and the worst recession since the 1930s, and some of the few that have not raised taxes are not facing big shortfalls.
6. A price adjustment is overdue. The official bottom-line Price of Government maintained by Minnesota Management Budget shows that total state-local revenues as a percentage of total income have dropped by about 1.5 percentage points from a typical level of 17.5 percent in the 1990s to 16 percent in 2010. If we had revenues equal to the Price of Government in the 1990s, we’d have some $3.5 billion more per year for our public goods and services.
7. Every former governor in all three parties, almost every former budget officer, and a broad range of community leaders at almost every level have recommended revenue increases as part of a balanced approach to budget-balancing.
8. Many national economists agree that states in a recession or with high unemployment are better off raising taxes modestly on high-income individuals than cutting more public-sector jobs and safety-net security for vulnerable families. Public-sector investment stays in the state and keeps families going; tax breaks often are not invested in the state.
9. Several reasonable options—such as sales tax modernization and expansion, closing loopholes for foreign corporate tax havens—could be tapped. But restoring income tax rates to pre-1999 levels is the fairest option, mainly because high-income folks over that period have realized a significantly larger share of income and wealth.
10. High-income families, those at the top 1 percent, pay a smaller percentage of their income in total state-local taxes than the other 99 percent. Those at the top pay about 9 percent; everybody else pays about 12 percent in actual state-local taxes, on property, sales and income.
11. Reasonable increases are NOT necessarily politically toxic. Public opinion is ambivalent to supportive for more revenue, especially on the highest incomes. Over many years, polls in Minnesota consistently have shown support for revenue-raising if the question is asked with even a smidgeon of context that reminds people what taxes pay for. Ask people point-blank whether they want to pay more in taxes, and they tend to say no. Ask them point-blank whether they want to slash investments in schools and roads and nursing homes, and they also will say no.
Constituents all over Minnesota need to implore their legislators in the final days to keep an open mind, and work toward a breakthrough that will produce a few hundred million dollars—and mitigate at least some of the damage to real people from yet another cuts-only budget.
Under very similar circumstances in the early 1980s (conservative Republican governor, DFL Legislature), it seemed like there was no way out. But Gov. Al Quie agreed to a temporary income tax surcharge (and it did turn out to be temporary) and the economy recovered nicely in the 1980s.
And under similar circumstances in the early 1990s (Republican governor, DFL Legislature), Gov. Arne Carlson approved a creative local-option sales tax increase that got the state over the hump, and the economy recovered to produce the roaring 90s.
Although adjournment is scheduled for Monday, a special session is quite possible and legislators just might be able to find a revenue increase that can produce a veto override.
Confusing as the facts might be, facing them, sharing them with voters and doing the right thing can only be good for everybody.
A version of this column originally ran in the St. Paul Legal Ledger Capitol Report on Thursday, May 13.
Dane Smith is president of St. Paul-based Growth & Justice, a progressive research organization that focuses on economics and state-and-local budget issues. He also spent 30 years as a writer for the Star Tribune and Pioneer Press, where he delved into state, local and federal governments and politics.