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Deadlock at the state Capitol

Date Published: 05/30/2011

Author: Dane Smith, President

Deadlock at the state Capitol

Star Tribune 

Here's a state budget-balancing idea that's so crazy, as they say in the old movies, it just might work.

We know this because a similar scheme worked like a charm just six years ago, when conservative Republican Gov. Tim Pawlenty pushed it through to end a state government shutdown.

Here's the deal: Rather than raising "taxes,'' we establish a major new "impact fee,'' a creative variation of Pawlenty's health impact fee (HIF) on cigarettes in 2005.

We could call this new revenue source the "inequality impact fee" (we could nickname it the "Iffy").

Or perhaps something that produces a friendly and lovable acronym, such as the "Saving Minnesota's Unity and Reinvestment Fee" (SMURF).

Liberals justifiably don't like fees, because fees tend to be regressive. But the SMURF could be set at a fixed percentage of the state income tax --let's say a 5 percent surcharge on the total amount owed the state, starting in 2012, and imposed only on those above a certain income.

The rate and the threshold could be adjusted to raise the $1 billion to $2 billion in biennial revenue (less than one-half of 1 percent of total personal income) that we need to preserve vital public investments and services.

The SMURF thus would be quite progressive, meeting Gov. Mark Dayton's standards. But to make it more palatable, it also could be temporary, blinking off when budget surpluses return.

Another feature that would sweeten the appeal would be earmarking SMURF proceeds to schools and public education, from early childhood through college and workforce development, freeing up money to help avoid the deep proposed cuts for other programs, such as health care and economic security for the aged and for low-income families.

Education arguably is not only the most popular and sacred function of state government for moderates and progressives, but it's also a clear benefit to business owners, and conservatives have vowed to hold overall education funding harmless.

To many, of course, the 2005 health impact fee looked like a tax, smelled like a tax and walked like a tax, and powerful antigovernment ideologues led by Grover Norquist got lathered up about it.

But the HIF did not permanently disable Pawlenty with the conservative base; he's now a viable candidate for president.

Whatever its flaws, the HIF was grounded in some serious reasoning. The use of tobacco by private individuals -- exercising their freedom to do as they please -- imposes substantial public costs on our health and welfare systems.

The reasoning behind a fee to pay for the impact of economic inequality is every bit as sound.

Growing economic inequality is a serious threat to long-term public health in a broad sense, as those at the top acquire almost all the gains from economic growth, and those in the middle and at the bottom stagnate or lose ground.

We don't have to blame the rich --and we certainly don't have reason to blame the vast majority at the middle and bottom.

Massive global and national forces, political and economic, have produced rising unemployment and poverty rates, reduced wages and lost housing equity. Whatever the causes, this inequality has real impacts that impose real costs and obligations on government.

When the top 5 percent or even the top 20 percent are making almost all the gains from economic growth, the rest of the population has less for health care, college tuition and so forth, and their dependence on the public safety net increases. Their lives and economic security deteriorate, and eventually we're all worse off.

An impact fee that's dedicated to education -- recognizing the social cost of neglected human potential, or human capital -- also makes sense.

Growing consensus exists, led by business thinkers, that our future economic health depends on better early childhood education, on more widespread higher-education completion by young adulthood, and particularly on reducing the gap in education achievement between racial groups and income groups.

Yes, the HIF was a bit of flim-flam. And this argument for a top-income "fee'' is meant as more of a mental exercise than as an immediately workable option.

The more likely escape hatch this summer is an expansion of the sales tax base, or elimination of some of the $11 billion annually that we afford to people through special tax deductions and credits, properly labeled tax expenditures.

But history teaches us to explore every creative option and not to rule out gimmicks. In past deadlocks, the way out was always panned as sleight of hand, but it was a way out.

In the early 1980s, Republican Gov. Al Quie approved a temporary surcharge on the income tax, and critics said it would never come off. It did, and Minnesota thrived through the rest of the 1980s.

In the early 1990s, Republican Gov. Arne Carlson agreed to a "local-option'' sales tax that critics on both sides ridiculed because it wasn't really optional at all.

But we got through the crisis and managed to expand health care coverage to the working poor the very next year, and the 1990s produced even more robust economic growth.

And let's remember these immortal words from former Gov. Pawlenty about his health impact fee in late May 2005.

"Some people are going to say it's a tax. I'm going to say it's a compromise and a solution to move Minnesota forward.''

Dane Smith is the president of Growth & Justice, a Minnesota-based policy research organization that advocates for public investments that broaden prosperity.

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