For decades, conservatives have maintained a drop-dead simple recipe for economic growth — namely, the Underpants Gnome economic theory:
Step 1: Cut taxes for the rich.
Step 2: ???
Step 3: Economic growth!
It’s completely absurd on its face. If cutting taxes somehow led to job creation, Mississippi would be an economic powerhouse, and the George Bush tax cuts would have brought prosperity instead of two recessions.
But despite its obvious failures, the Underpants Gnome economic theory has been the Republican party line for nearly four decades. Even worse, it has somehow become the conventional wisdom among the Very Serious People of the political chattering class. That’s why it was great to hear Governor Dayton not only forcefully pushing back on this nonsense in his State of the State address, but making the case that his budget would actually improve our business climate:
I want Minnesota to provide the best jobs for our citizens, the best lives for their families, and the best environment for our businesses to provide those jobs.
Those who measure “business climate” only by tax rankings will question my strategy… However, Minnesota has not been considered a “low tax” state during my almost four decades of public service. And the facts show that states offering businesses and their top executives the lowest taxes usually offer the rest of their citizens the lowest incomes, the fewest public services, and the highest crime rates….
I have a respectful, but strong, disagreement with some of the other elected officials here tonight, about the value of public investments in, and incentives for, economic growth. My father and uncles taught me the paramount importance of continuous private and public investments in improving the communities in which people work and live. (Dayton’s prepared remarks, emphasis added)
Low taxes for CEOs aren’t a sufficient incentive to start or expand a business; trickle-down economics just doesn’t work. What does work is having a well-educated workforce, excellent public infrastructure, a great quality of life, and a prosperous population that can afford to buy businesses’ goods. That’s a much better way to improve our business climate than racing other states to the bottom.
Trickle-down economics has failed. It’s time for us to abandon the Underpants Gnome economic theory and get proactive about improving our business climate for real.
For the last decade, Minnesota’s finances have lurched from one disaster to another. With insufficient revenues, lawmakers have patched the budget together with different accounting gimmicks each biennium. When the recession hit, even those tricks weren’t enough to prevent painful spending cuts.
Mark Dayton’s budget would restore stability to both our revenues and our expenditures. On the revenue side, he would rebalance our tax system, reducing property taxes while increasing sales and income taxes, as the image to the right illustrates. The broader sales tax base will make the sales tax less variable and more reliable, and will allow us to increase revenues while lowering the tax rate. And under Dayton’s plan, the rich will finally pay their fair share in taxes.
Dayton’s budget will also restore spending to the minimal level needed to maintain state services. The chart below shows the amount of spending required to just keep pace with inflation and population growth. For the last two biennia, we’ve fallen below that minimal level of spending. Dayton’s budget restores stability to our state’s spending.
There’s a case to be made that we should go farther than merely restoring stability. As I said, expenditures under Dayton’s budget would be the minimum needed. Raising another billion or two would allow us to make much-needed investments in areas like higher education, transit, and social services, all of which have suffered from neglect over the past decade. But while it doesn’t go quite as far as I’d like, that’s really just a quibble. In the end, what’s important is that Dayton’s budget would finally restore fiscal responsibility to Minnesota.
Governor Dayton and his staff are hard at work on a proposal to reform Minnesota’s tax system. According to MPR, one idea that has received a lot of attention is finally broadening the tax base:
Dayton’s point man on taxes, Revenue Commissioner Myron Frans, has been traveling the state to talk about potential changes that could be in the governor’s tax reform proposal next month. Frans said a lot of people are interested in expanding the sales tax base and lowering the rate. The general sales tax rate currently stands at 6.875 percent.
“We have one of the smallest sales tax bases in the country right now, and certainly in this region,” he said. “And at the same time, we have the highest sales tax rate in the five-state region.”
Our sales tax exempts all services, such as auto repair, hair styling, and massage, to name just a few examples. At a time when Minnesotans’ purchasing habits have shifted dramatically from goods to services, that has been disastrous for our state’s revenues. It has also created a peculiar situation where Minnesotans’ sales tax bills vary widely depending on the mix of goods and services they purchase.
The solution, as Frans said, is to broaden the sales tax base and lower the rate. According to an analysis by MN2020 — admittedly a few years old by now — raising taxes on services and lowering the rate from 6.875% to 5.0% would raise $1.2 billion per biennium, eliminating our deficit while making our sales tax more competitive with neighboring states.
Our sales tax is the product of a mid-20th-century economy, and it desperately needs to be revised. That revision would allow us to eliminate the deficit while lowering the tax rate, simply by extending taxes to purchases many people expect to pay taxes on, anyway. Expanding the sales tax base is a no brainer, and it should be a centerpiece of any tax reform plan.
Once again, a state under Tea Party control is trying to destroy unions. First it was Wisconsin, then Ohio, and now Michigan. Conservatives say they support the free market, but they oppose allowing workers to fight for the best compensation they can get. This is a glaring inconsistency, and it begs the question: Why do they hate unions so much?
The answer is simple: Unions are the only ones who fight the class war on our behalf. Without unions, the super-rich and massive corporations would take all the wealth, instead of just almost all. Attacks on unions are a direct attack on the middle class, led by the party that represents the wealthy oligarchs.
Strong unions and middle-class income gains are closely related. But that’s not all unions have done for us. Labor’s greatest victories are such a fundamental part of our society that we often take them for granted. We expect 40-hour weeks and 2-day weekends. We expect holidays, vacations, and paid overtime. We expect to receive at least a minimum wage. We expect that our children will go to school, instead of going to work in a factory.
But we should never be lulled into thinking that these hard-fought gains are permanent. In fact, they’re constantly under attack. Big business and the rich are hard at work trying to undermine the foundation of the middle class, and they’re succeeding handily.
The battle against our unions needs to be seen in the proper context. It’s a major front in the class war being waged against us by corporations and wealthy oligarchs. Whether or not you’re a union member, you benefit enormously from the work unions do. That makes this an attack on you and your way of life.
There’s a refrain we’ve been hearing frequently from DFLers lately: Yes, equal marriage is important, but our top priority is the budget, and it will have to wait. That’s a ridiculous stance to take. After all, writing a bill to legalize marriage would take no time at all. More importantly, I just can’t ignore the callousness of hearing those who take the right to marry for granted telling others they must wait.
Would our happily-married legislators be willing to wait? What if we told them that, because we need them to focus 100 percent of their energies on the budget, they must leave their spouses for a few years, and they can re-marry when we decide the time is right for them to return?
I know, that sounds absurd. It sounds absurd because most of us are used to having the right to marry; it’s something we take for granted. Nobody can just take that away from us on a whim. Because we take it for granted, though, some legislators apparently don’t see the problem with asking others to wait.
For those who don’t have the right to marry, this is important. It’s about whether they have the freedom to join together with the person they love. It’s about equal access to legal rights they’re now denied. For some who are currently denied access to their partners’ health care, it may literally be a life-and-death issue.
I ask DFL legislators to put themselves in the LGBT community’s shoes. What if you were denied the right to marry the person you love? How would you react to someone telling you to wait until it’s politically convenient for them? When it comes to civil rights, that’s simply unacceptable.
Amidst all the talk of the “fiscal cliff,” there’s one topic that has received short shrift: We need more stimulus to boost economic growth. Not only should we avoid slashing spending during a recession, we should increase spending over the short term, while reducing the deficit over the long term. What’s more, investors will actually pay us to do that:
Borrowing costs for the United States have plummeted. While real interest rates for borrowing 10 years out were still positive in late 2010 when these plans came out, they have since gone negative and stayed there. Investors are paying us to borrow money for the next 10 years. (Mike Konczal, via Wonk Wire)
Given these negative interest rates, a large, well-targeted stimulus is the fiscally responsible thing to do. We can meet years of infrastructure needs — projects we’ll be paying for anyway — at discount prices. Not only that, the best way to reduce the deficit over the long term is to restore tax revenues by bringing back the economy. If we can do that with one-time spending at negative interest rates, the one-time cost will have been well worth it.
Of course, Washington won’t consider this. All the Very Serious People know that the thing to do is to eliminate Medicare, Medicaid, and Social Security. This is a mistake. We’ll never get anywhere by dismantling America, only by rebuilding it.
In a statement on the state’s $2 billion deficit, Governor Mark Dayton criticized the previous legislature’s use of budget gimmicks and pledged that the DFL would institute an honest budget:
There is just a lot of avoidance, and a lot of gimmicks, and a lot of unwillingness to take responsibility for the situation that faced them at that moment in time. And we are not going to perpetuate that. We’re going to make tough decisions, there will be unpopular decisions, there will be hard decisions, but that’s what we’re going to do.
I hope Dayton and the DFL will follow through on that, and I believe they will. Our state desperately needs someone to finally get our budget under control. If Dayton and the DFL stick to their guns on this, the people of Minnesota will reward them for it.
Minnesotans have lived through a full decade of constant budget crises, and we’re tired of it. We understand the need to make some tough decisions, and we understand that previous policymakers have refused to do so. While we surely won’t agree with each decision in the final budget, we will be relieved and grateful to finally return structural balance to the budget.
About an hour ago, Minnesota Management and Budget released their November Forecast. The forecast was a bit confusing, with a complicated mix of good and bad news. Here’s the short version: Despite an improving economy and higher-than-forecast revenues in FY2012-2013, we’re right back where we started with a $1.1 billion deficit.
Budget Commissioner Jim Schowalter summed things up succinctly at the opening of his press conference,saying “There is no relief in sight for our fiscal woes.” Ouch.
Actually, there is some good news from the 2012-2013 biennium. We’re forecast to end the biennium with a $1.3 billion “surplus.” But it’s not a real surplus, since it will immediately go to pay down the $2.4 billion school shift. And to put that good news into perspective, the last legislature borrowed $1.4 billion to “balance” the budget.
That means the good news in 2012-2013 wasn’t quite enough to offset the previous legislature’s irresponsible budget. GOPers in the last legislature spurned Governor Dayton’s efforts to increase revenues, relying instead on one-time funds and borrowing to “balance” the budget. The result is that we’re left with yet another deficit hanging over our heads. Those temporary measures got us through one more biennium, but did nothing to fix the long-term structural problems of our budget.
It gets worse when you consider that the $1.1 billion shortfall cited in the forecast isn’t the complete picture. On top of that $1.1 billion, we owe our schools an additional $1.1 billion. And don’t forget inflation, as I warned earlier today. According to the forecast, we’ll need to spend an additional $890 million to keep up with inflation. All told, that leaves us $3.1 billion in the red. And that $3.1 billion reflects our deficit after several years of harsh cuts to state services that need to be restored.
It’s time to put an end to the constant budget problems that have plagued our state for over a decade now. We need a permanent increase in revenues that will allow us to restore state services, pay off our debts, and finally stabilize the budget.
Today, State fiscal analysts will release the annual November budget forecast. While it’s the February forecast that serves as the official basis for the budget, the November forecast gives us a good first estimate, and will allow the Governor to begin drafting his budget proposal. While I can’t say for sure what the forecast will look like, it seems like a safe bet that it will show yet another of the deficits that have plagued us since taxes were shortsightedly cut under Jesse Ventura. Worse, the true deficit will be higher than the forecast shows.
The budget forecast will understate the deficit because it does not count for inflation. I know, that seems insane, doesn’t it? To produce an honest and fair budget, it’s important that we understand the true cost of providing the same level of services we did in the last biennium. And in a state where the budget will approach $40 billion, even 1 percent inflation would mean the budget must increase by $400 million. Regardless of the measure you use, inflation was greater than that in 2012.
So why doesn’t the forecast account for inflation? You can thank our previous Governor, Tim Pawlenty, who vetoed a measure that would have fixed the mistake. Pawlenty claimed that accounting for inflation would create “autopilot growth.” But the fact is, if we decide we want to keep a service like education or state-provided health care at the same level, it has to grow each year to cover inflation; anything that fails to keep pace with inflation means a reduction in services.
This is one of those seemingly small, niggling things that actually make a big difference in how we governor ourselves. With full control of the state’s policymaking apparatus, it’s important that DFLers fix this oversight this year.