The state House Republicans have something new they want to try, and it sounds exciting. To solve the problem of what to do with the projected $1.9 billion surplus, they propose a $2 billion tax cut, mostly for people with lots of money already. I understand no one has tried this before. Apparently fiscal conservatives have always been too concerned about deficits from the loss of revenue to give it a try. The theory is that if we give more money to people who already have lots of money, they invest it in ways that help everybody, and the growing economy means the government actually gets back more than the taxes were cut.
I can’t conceive of what could be wrong with the theory or how it could go wrong!
CORRECTION: After further research, I want to address an error in the first paragraph. Specifically, it turns out there’s a slight problem in that everything is wrong. This isn’t a new idea after all, but actually the policy Republicans always advocate when there’s a budget surplus. Or a budget deficit. Or when the economy is strong. Or when the economy is weak. Or when the wind changes. Moreover it has been tried, repeatedly, with consistent results, namely the government runs short of revenue and the wealthy recipients tend to just pocket the cash instead of investing it. Turns out they have so much money already that if there were good investment available, they’d already be investing. I asked how that squared with the “Reagan recovery” of the 1980’s, and turns out he raised taxes. A bunch. Because the deficit blew up. He just didn’t raise them on the same people who got the tax cuts. Oops. Also turns out there are these places called “red states” suffering slow economies and chronic budget shortfalls. Wow. I wonder if these states are as red as my face is right now!
Also, it turns out “fiscal conservative” doesn’t mean what I thought. They don’t hate deficits; just taxes. They cut taxes which creates deficits, then use the deficits to demand spending cuts, and use the balanced budget to demand more tax cuts. Gee, almost sounds like it’s on purpose.
I hope someone tells the Republicans about this, because they don’t know. In a recent interview on MPR, Speaker Kurt Daudt actually said, roughly 2:45 in to the interview, regarding what caused the surplus and what might cause it to go away, “If we continue to ignore what it is that makes Minnesota’s economy grow, I think we’re going to be right back in the same problem where we have a deficit again, and we certainly want to avoid that.” Right after expressing concern about the possibility of a deficit, he was asked what taxes Republicans want to cut. I assumed he’d say, “Well, none, because I just said we’re concerned about future deficits.” Nope. He talked about “tax relief” for people of modest incomes and Social Security recipients. Hmm, that’s odd, because people with no other income already have too low an income to pay income taxes, so only recipients with pretty ample income will get a cut. Moreover, most people get just a small tax cut, and just for the biennium, which is how taxes should be cut if they’re based on a one biennium surplus. But that elimination of the state property tax for business is forever.
Hurry, someone tell the Speaker. He obviously doesn’t know this stuff!
Digging deeper, it turns out that the last time the state budget was running surpluses, at the beginning of the prior decade, there was a permanent tax cut. Apparently those voting in favor were unaware recessions happen once in while. They’re inevitable actually. We don’t know when the next recession will hit, what will cause it, or how bad it will be, but it will happen. The last tax cut during a surplus blew up in our faces, causing a decade of fiscal crises as Republicans refused to do the unavoidable and raise taxes. The chronic crises ended when Gov. Dayton and the DFL legislature raised taxes on upper incomes. So now Republicans propose doing exactly what they did before that turned out to be a huge mistake. Too bad they don’t have access to any records from that time so they could look up what happened.
Another correction, sorry: turns out Republicans do have access to records from that time, and some were even around then, so I’m mystified by what they’re doing. Can’t imagine the reason.
Wait, stop, enough. I admit it, I’m not mystified. I can imagine. I burned through my snark supply. I have hit the snark wall. In reality, I do want to be fair, and the fact is Gov. Dayton’s proposal uses the surplus to pay for universal pre-k. For the foreseeable future, this has the same fiscal problem as the Republicans’ permanent tax cuts in that it assumes the surplus will recur every biennium, or that the money will somehow be found another way. The surplus is temporary, and since I actually do remember that the tax cuts before the first Bush recession caused one budget shortfall after another, and a decade of governing by crisis, I’m skeptical of doing anything with the surplus other than something one-time. Save it, or use it to pay for the projects in the bonding bill instead of issuing bonds; one-time use for one-time money. I am torn though, because universal pre-k is actually a good idea. Education is an investment which pays off in the form of a more educated populace, and more educated people tend to be more productive, make more money, create more jobs. The hard part of selling it is that since we’re talking about four-year-olds, we’re going to wait about 20 year for the pay-off, and we just know Republicans are going to be complaining about all the money we’re spending. There is actually a stimulative effect from the jobs this will create immediately, though the investment part comes in when the children who benefit become self-supporting adults earning decent incomes and paying back into the public coffers.
Dayton is even right that this needs to be universal. The problem with “scholarships” just for those whose parents can’t pay is that it turns pre-k into something just for the poor, which means it gets the welfare stigma, and political support from the middle and upper classes dwindles. Social Security is for everyone, and thus has broad political support. TANF is for the poor, and it’s under constant attack. Same for food stamps. Even unemployment insurance has been weakened (contrary to popular belief, most unemployed people never qualify for benefits). If pre-k isn’t to be under constant political assault, it can’t be means tested. Just like the public schools are (or at least were intended to be) for everyone and not just those without the money to pay, pre-k has to be for everyone.
Though I’m not sure if that’s what the governor is thinking. He might be thinking that the surplus offers the only politically feasible means of getting it done. Or he might be thinking that you have to ask for the ideal before settling for the possible. Don’t pre-compromise. Republicans don’t. Even with my skepticism about spending the surplus, on balance, I’m inclined to back the governor on this.
It’s certainly much better than the Republicans’ “here we go again” tax cut.
From Dave Porter: If our Republican legislators were truly concerned about tax fairness, they would be looking for ways to compensate wage earners for the extra 7.5% of our gross incomes we are paying to the US Treasury under the guise of FICA (Social Security) payments. This additional tax, imposed only on “earned income,” but not on income characterized as “dividends” or “capital gains,” flows directly to the general treasury.
In exchange, the Social Security Administration receives “bonds”
with neither payment date nor interest that are supposedly to
“enhance” our Social Security Income at some future date.
This little swindle was conceived during the Reagan Administration as a way to pay off the national debt. It succeeded, and was supposed to “sunset” in 2000. But then a Republican Congress and the Junior President Bush extended it indefinitely as part of their “Tax Reform Act.”
As a result, people who actually work for their money, like waiters, dishwashers, teachers, cab drivers, newspaper employees, Iron Range miners, and the rest of the 90% of us who do not receive such favorable tax treatment, continue to subsidize the uppermost class. That 7.5% of your gross income could be why we have so little in savings – it went to help the rich get richer.
Meanwhile, the overly rich continue to bamboozle us with the politics of God, Guns, Abortion, and Class Warfare.
From Dog Gone: Never a new idea.
Never a good idea.
Never ever ever learn from their mistakes.
Conservatives – bad for government, bad for the state, bad for the country.