Growth & Justice Blog

Before you buy the story about Minnesota's high taxes, read this

One of my pastimes is following coverage of tax issues across Minnesota, which means every so often, a letter to the editor like this one pops up in my email. Here's the money paragraph:

[W]hen comparing states with similar geographic and economic profiles, Minnesota extracts substantially more taxes per capita than surrounding states like Wisconsin, Iowa and South Dakota. Total state taxes per capita in 2010 were as follows: Minnesota $3,245, Wisconsin $2,527, Iowa $2,235, South Dakota $1,602 and national average $2,282.

The author uses these "facts" to support his opinion that Minnesota is a “Business Hostile” state that is driving away companies and jobs.

Since the letter writers keep misusing the Census Bureau data — let's be charitable and call them mistakes — I feel bound to keep pointing out why these comparisons are misleading. I hope you will apply these points when you see similar screeds against Minnesota's tax rankings.

1. The problems with per capita comparisons. The Census Bureau itself [PDF] cautions us not to use its  statistics on state tax revenues per capita to compare individual tax burdens. That's because their figures "reflect the taxes a state collects from activity within the state, not necessarily from the individuals within a state.”

States that rely on sales taxes (South Dakota, for example) collect revenues from every tourist who visits Wall Drug, rallies in Sturgis or visits the Black Hills.

States that benefit from severance taxes from mining and oil and gas (North Dakota, for example) collect from the companies doing the extraction, and those companies incorporate those fees in the prices they charge consumers across the country. That's why the letter writer left out North Dakota from his list. The state's per capita taxes were the highest in the region at $3934.

There's a second problem with per capita comparisons. If people make more money, they tend to pay higher taxes. Since Minnesotans make more money per capita, they also pay more.

[Note: The following paragraph has been corrected based on the comment below from MTA.] The Minnesota Taxpayers Association publishes an excellent report called How Does Minnesota Compare? [PDF] that looks at total state and local revenues per capita and as a percent of income. State and local tax rankings are 13th per capita and 14th per thousand dollars of income. However, looking at "own-source revenues" that include non-tax revenues, Minnesota ranks 12th per capita, and 23rd based on income, because of our higher average income. When federal revenues to the states are included, we rank 17th and 32nd, respectively.

2. What’s taxed differs by state. The Census Bureau again: “Different states use different approaches to taxation, and comparing only the total taxes collected by each state is not enough to understand the economic impact of those states’ taxes.”

If we've learned anything in Minnesota after the latest budget battle, we know that states can shift taxes or costs to local governments. The Census Bureau figures quoted above don't take into account local taxation.

Thus, a state like Wisconsin that has higher property taxes levied locally appears to have a lower state tax burden. But when local taxes are included, the gap closes. And when income is taken into account, Cheeseheads rank 15th highest to our 23rd.

3. State revenues are redistributed within the state. In the past year, I've seen the Census Bureau figures quoted in papers serving Park Rapids, Walker and Bemidji.

Guess what? Residents in those regions pay well below average in state income taxes, sales taxes and business taxes [PDF]. Park Rapids' Hubbard County, for example, averages less than $1,650 per capita in total state taxes (vs. $2434 on average statewide) while receiving more that $3,000 per capita in state aids and credits (vs. $2645 on average).

If taxpayers writing letters to those papers still feel they're getting a raw deal, at least now they know what the deal is.

4. Minnesota's taxes don't exactly drive away the wealthy. Before you buy the claim that Minnesota is unfriendly to high earners, look at how those neighboring states compare.

Minnesota has a higher ratio of millionaire households than any of those other states. Here are the rankings as of 2007 [PDF]:

MN 12th
WI 24th
IA 33rd
SD 47th
ND 48th

Yes, we even do better than Florida (18th) and Arizona (21st) where our wealthy snowbirds are supposed to be flocking.

Next time you see "facts" that purport to prove how terrible our tax climate is, take these points into account. And note, we haven't even touched the spending or quality and efficiency of state services.

—Charlie Quimby

Five Reasons For Optimism in 2012

Five reasons, small and grand, for optimism in 2012:

• Even Katherine Kersten is hopeful. I like much of what the conservative firebrand said in her latest Star Tribune column about the "debilitating hail" of news that emphasizes "crisis and decline" and how American success has been founded on the "virtue of hope." This was a nice break from her relentless negativity about any and all things public and progressive about our nation and state. She missed some points about how Americans were always hopeful for justice and greater equality as well as freedom and business growth. But a little ray of sunshine from KK is wonderfully refreshing.
• A good friend of mine may have turned the corner in treatment for a nasty disease. A big reason health care costs keep going up is that people live longer, and thus more people need more medicine and more doctors during more of their lives. I'll got out on a limb and declare that people living longer is a good thing. Another reason for rising health care costs and increasing under-insurance is expensive financial administrative costs in the health sector. Growth & Justice will produce a study early this year that takes a look a the costs and benefits of a universal and unified system of health care for Minnesota.
• The American people are hopeful, amazingly. Although most Americans overwhelmingly view 2011 as a bad year, a recent Associated Press poll found that almost 80 percent of Americans are optimistic about the future of their own families in 2012, and more than 60 percent are optimistic about 2012 for the country as a whole. The polls suggests that Democrats are optimistic than their candidate will be re-elected and Republicans are optimistic than they will win, but hey, it's all optimism.
• Things actually are getting better for humankind as a whole. As Harvard professor Steven Pinker recounts in his convincing and exhaustive new book, "The Better Angels of Our Nature" (reviewed here), the current era is the safest and least violent in recent human history, and living conditions are improving everywhere. I like his theory about human progress being part of the “civilizing process," a term he borrows from the sociologist Norbert Elias, who attributes it to the consolidation of the power of the state above feudal loyalties, and to the effect of the spread of commerce. In other words: a happy synthesis of capitalism and good strong democratic governments.
• Finally, in Minnesota, we are well governed and our business leadership is better than elsewhere. Our public sector and our private sector are fundamentally sound, despite gridlock in Washington and depredations on Wall Street. I like what a recent Star Tribune editorial had to say at year's end about Gov. Mark Dayton taking us in the right direction, and the state Senate is now under the leadership of a Republican who is openly moderate.

The economic collapse of late 2008 turned out to be as big a hole as we thought and there is lots of room for improvement all around, from redesigning our governments to restoring our public investments in education and public infrastructure to reducing racial and income inequality. Lots of things can and will go wrong. But there's no future in pessimism. See the doughnut, not the hole.

--Dane Smith 

Know exactly where you rank among the 99 Percent (you may be surprised)

One of the best things coming out of the 99 Percent movement is an increasing public awareness of exactly who gets how much in our increasingly unequal nation.  A number of interactive calculators have popped up on the internet and I'd recommend the Wall Street Journal's "What Percent Are You?'' site for a quick calculation of your household's approximate position on our extremely unequal income ladder.  The calculator advises that an annual salary above $506,000 puts you in the top 1%, while you need to make less than $2,500 a year to be in the bottom 1%.

Ignorance and misinformation about exactly where you are in the economic hierarchy can lead to poor decision-making in voting and policy-making.  I've seen studies that show many Americans on the bottom half of the scale mistakenly think they are more affluent than they are, and are even more wrong about their likelihood to ever make it to the top echelons.  As a result, they may actually oppose increasing tax rates on the top tier because they imagine they are in it or close to it, or destined for it.  Similarly, I've seen studies that show many households at the upper echelons, perhaps because most of the people they hang out with also have second homes in Florida, don't think they are rich.  A recent New York Times story headlined "Everyone is Middle Class, Right" summarizes a study that documents these erroneous impressions.  Note the bar graphs that show how wrong people are about their status, on both the top half and bottom half.

Maybe if more wealthy folks knew exactly how many Americans ranked below them, they wouldn't be so hostile to paying more for the social contract.  And if more voters knew how far behind the top tier they are, the less they would empathize with that advantage.  Knowledge, as they say, is power.

One last point.  The Wall Street Journal's What Percent Are You? calculator is part of its regular feature, The Wealth Report, a blog by senior writer Robert Frank.  Frank's blogs are even-handed, often counter-intuitive and progressively edgy and funny, without being strident.

--Dane Smith

Channel that "99 percenter" energy by linking to the SKILLS@WORK movement

Protesting the increasingly unfair advantage of the top 1 percent underlies much of the new energy around politics and policy these days.  And that can be healthy, because the economic decline of the middle class and the working class is a major challenge of our times.

But it's important to stay active and informed on a more constructive front as mainstream Minnesotans try to channel that anger and enthusiasm in 2012.

And one of the best new positive things going in Minnesota, coinciding with the Governor's Job Summit this fall, is a campaign called SKILLS@WORK, a joint project led by the United Way of the Greater Twin Cities, and the Governor's Workforce Development Council.

Key facts from the SKILLS@WORK website that many have already heard, but must be kept top-of-mind:

• In 2018, 70 percent of Minnesota jobs will require education beyond high school, yet only 40 percent of working-age adults in Minnesota hold a postsecondary degree.  (We at Growth & Justice have been urging state leaders to start by setting a goal of 75 percent post-secondary attainment by 2020.  See our op-ed urging an attainment crusade earlier this month.)
• Nearly two million working-age Minnesotans lack a credential beyond a high school diploma. 
• Educational attainment levels are expected to decline in coming years – an unprecedented trend.

The alarming facts surrounding an educational equity gap for kids of color, which is grossly unfair to our fastest growing demographic groups, is a major factor for that last bullet.  One of the better comprehensive formulas for improving that picture is contained in the document "All Hands on Deck," which was produced by the Governor's Workforce Development Council under the previous administration and has strong input from the corporate and business world.  The GWDC is one of the most farsighted state agencies you've maybe never heard of.  Plug in to it.

--Dane Smith

 

Wave of innovation in Owatonna schools more important than referendum loss

As Owatonna high-schooler Jarrod Neuharth described his project designing parachutes from scratch -- learning how to sew from his grandmother, rustling up help from a local shoe-repair shop, linking up to a NASA project -- I got the sense that we might be seeing both a creative new entrepreneur for our state economy AND an exciting new shape for tomorrow's public schools.

Neuharth was a star performer in a presentation at the U of M this week by an articulate and passionate Owatonna Public Schools team that has built an Owatonna Options' program over the last few years, funded in large part by federal recovery funds.  The initiative, still under construction, is based on project learning and includes an imaginative blend of interdisciplinary workshops, a flexible schedule, mentorships, teacher guides, a heavy emphasis on science and technology, and strong emphasis on the principles of leadership and inquiry.

The opening passage of the options handbook for students describes the program as a "personalized and innovative learning environment."  Its beneficiaries include both gifted high-achieving students, like Neuharth, and those who are struggling with traditional school instruction delivery models.  Neuharth said after his presentation that one of the most valuable members of his project team was a friend who was not doing well academically.

"Owatonna might be delivering the 21st Century model for public schools,'' observed Steve Kelley, director of the Center for Science, Technology and Public Policy at the University of Minnesota's Humphrey Institute.  Kelley organized a roundtable session that included presentations from school innovators from Itasca County and the Blandin Foundation, where citizens and school officials are working on a comprehensive strategy to improve student success, and with whom Growth & Justice has partnered (see posts from June 26 to July 1 on learning about the total community model in Cincinnati.)  A third presenter at the meeting was the Teacher Education Redesign Initiative, a partnership with the Bush Foundation.

Owatonna schools were in the news this week because of a very narrow school levy referendum loss (mostly for buying a new building and other facilities needs, unrelated to the reform initiative).  But that loss, by just 10 votes the night before the presentation, seemed to actually enthuse the Owatonna team about its commitment to press forward with Owatonna Options.

Although "Options" is initially focused on some 120 students in grades 9 through 12, plans call for expansion.  And K-8 is undergoing an innovation transformation too, with new emphasis on developing themes of leadership and inquiry and the principles of Steven Covey's well-known "Seven Habits of Highly Effective People."

Influenced by a wave of recent ground-breaking books and research (including "Disrupting Class," co-authored by Minnesota public policy leader Curt Johnson) and advocacy on the need to disrupt and challenge the so-called "factory model" of public education, Supt. Tom Tapper and his team of teachers and administrators of set out several years ago to develop a new model.

The prologue to a thick document, "A New School Structure: Owatonna Public Schools' Journey to the 21st Century'' declares that "providing children with skills of the 21st Century such as collaboration, visioning and invention will be the foundation of all our schools.  This will be accomplished by purposefully instilling skills of leadership and inquiry.  Providing choice to parents so that students will have the opportunity to learn within the context of their unique learning styles will add to the effectiveness of our instruction and enhance the possibility that every student attending Owatonna Public Schools wil be 'inspired to succeed' as our mission requires us to do.''

--Dane Smith

Minneapolis Promise makes progress in getting kids on early college track

Research shows that getting kids and their parents in a post-secondary mindset as early as possible -- creating not just hope but an expectation for college attainment -- makes a big difference in whether they get credentials.

Minneapolis Mayor R.T. Rybak and his top economic development official, Mike Christenson, without a lot of fanfare, have been working this angle for years.  Every year in the fall Mayor Rybak addresses every 9th grader in the city with a message and specific programmatic inducements that encourage them to compete for summer jobs and scholarships for college, or that put them on the post-secondary track.

Christenson, director of the Minneapolis Department of Community Planning & Economic Development, and a Growth & Justice Policy Fellow, summarizes the success of those efforts in a recent MinnPost Community Voice column, key parts of which we reprint here: 

 

 

"Let's begin with the story of Alex Glaze. Alex and his twin sister grew up in poverty and were removed from their mother's home early in life. Alex quickly learned that if he needed a ride to school or school supplies, he was on his own. He began working in junior high to take care of household needs. At 18, Alex and his sister were told to leave their father's home for good.

After graduating from Southwest High School, Alex worked in the Minneapolis mayor's office as a STEP-UP intern. This summer, he joined nearly 2,000 other STEP-UP interns and dozens of employers to celebrate their summer accomplishments. For many interns, it was their first work experience. Like so many of us, they described their summer jobs as their first big break...

....The summer job is one of three parts of the Minneapolis Promise offered through Achieve Minneapolis. Mayor Rybak visits assemblies of ninth-graders in each Minneapolis public high school every fall. There, he lays out a compelling alternative to street life. Every Minneapolis youth may compete for one of 2,000 summer jobs, must complete a college and career map called "My Life Plan," and can apply for thousands of scholarships through Minneapolis Community & Technical College, Augsburg College, the University of Minnesota, Admission Possible, the Children's Defense Fund, the McGuire and Wallin and Page Foundations and many more programs.

State and city leaders from all sectors worry about the overwhelming challenges of the achievement gap in Minnesota. Populations of color trail others in measures of educational success at a nation-leading rate. We're a proud state, and national leader in so many categories, but this is a leadership position we need to vacate. After eight years, the Minneapolis Promise offers hope. A combination of summer jobs, career and college plans, and scholarships adds up to more than the sum of its parts...[and]...if the Minneapolis Promise continues to grow, the achievement gap will shrink. Here are the facts:

•    Over 82 percent of the STEP-UP and city summer interns are persons of color.
•    More than 900 students have attended MCTC under the Power of You program, and the number of Minneapolis high-school graduates has more than doubled at MCTC in five years.
•    The University of Minnesota has admitted 166 STEP-UP interns since 2006. 
•    ACT testing and college participation rates from the Minneapolis high schools continue to grow.

...Minnesota's future work-force challenge will be to inspire populations not likely to attend college to hear this promise. In Minneapolis, we have found that summer jobs join with college supports to boost college participation. Let's hope that miracle can go to work, first through a summer job, for all Minnesota youth like Alex. And let's hope that the business community, which has kept this promise in Minneapolis, will inspire others as well. One last thing: Alex Glaze is in the freshman class at Stanford this fall." (Bold italics added).

The punchline, about an impoverished Minneapolis child, benefiting from broad community support, smart taxpayer investments combined with private-sector partnerships, entering prestigious Stanford University, tells it all.

--Dane Smith

"More Bang for Your Buck" should be required reading for Minnesota policy types

Peter Heegaard is a former executive for a financial firm, and he's well-known in Minnesota public policy circles as a leader with a strong social conscience, a great combination of heart and  passion for progressive change and hard-headed analytical sense on dollars and cents.  His new book, "More Bang for Your Buck,'' should be required reading for policy wonks in Minnesota who want to be on the cutting edge of what works in human services, and more important, how to tell.  Two subtitles on the cover summarize the contents: "Good News for Taxpayers, Public Officials, Philanthropists & Non-profit Managers,'' and "How Cost/Benefit Analysis Can More Effectively Promote the Public Good."

The book brings state-of-the-art thinking and many actual case-by-case calculations to the emerging efforts to show the return from public and nonprofit invesments in human capital, primarily education, workforce preparation and other human services.  Heegaard's book explains with lively detail how leading Minnesota nonprofit groups, such as Admission Possible and Twin Cities Rise, and others, many of which benefit from taxpayer support, have been able to document with cost-benefit analysis that their work with human capital is in fact returning an investment to the economy and to society.

I like this passage in the introduction: "Enough examples of high payoff civic investments now exist to make a very strong case that the art of giving or philanthropic investing, including government budget decision-making, can create new solutions to age-old problems, while at the same time improving the returns on our taxable income.''  The book is available at Nodin Press.

--Dane Smith 

Report card is in on the Tax Cut Decade: Not good for most of us

The U.S. Census Bureau's report on "Income, Poverty and Health Insurance Coverage in the United States: 2010," is out and it's worth digging in to the spreadsheets showing year-by-year change over the last 25 years for each state.

More than 500,000 Minnesotans currently are without health care, even more (560,000) are living below the official poverty level (a ridiculously paltry $22,113 for a family of four) and median income in Minnesota ($52,554 in current dollars) has dropped to its lowest level since 1999.  As usual, our rankings relative to the rest of the nation are a little better, but this should be small comfort.

It's important to remember that 1999 gave us some of the largest state income tax cuts in Minnesota's history, sold then as the surefire medicine for long-term economic growth.  Many states followed suit with their own tax cuts, and two years later we were treated to some of the largest federal income tax and capital gains tax cuts in history, also billed as a tonic for long-term job and income growth.   Instead, the next decade was marked by a dot-com bust and a bad recession, a rather weak recovery for all but high-income families, another recession capped by a banking and housing collapse, the worst economic and private-sector failure since 1929, and severe budget shortfalls and ballooning debt at the state and federal level.

Of course, the last decade, increasingly known as the "Lost Decade'' for most Americans and Minnesotans, also was the decade of 9/11, an expensive and dubious "Global War on Terror," rapid technological progress and disruption, accelerating economic globalization, and manufacturing job loss to cheap-labor competitors.  All of these factors surely are related to economic dislocation and travail, and poor and middle-income folks usually can't cope as well with rapid change as the people who are on top, highly educated, and in position to take advantage of economic changes.

But let's not forget that it was anti-government conservatives who made the cause-and-effect case, and still do, that tax cuts are not only a good thing for the economy and general prosperity, but the best and main thing to do, period.  As Ricky Ricardo would say, they have some "splainin' to do.''

Some of the best analysis and interpretation of the Census numbers can be found at the Center for Budget and Policy Priorities, which offers an interesting take on the growth of "deep poverty,'' and the Minnesota Budget Project, which notes that only Michigan had a bigger drop in median income than Minnesota since 1999.

--Dane Smith 

Nathan and CSC at Macalester show how to shape mindset early for post-secondary completion

Check out the recent column by our friend and ally Joe Nathan at the Center for School Change at Macalester College for some stirring advice on getting kids and parents plugged in to college visits and post-secondary options during the month of August.

We all know that our more successful students are prowling college campuses and weighing options by their sophomore or junior years in high school, and Nathan's column provides links to the public and private systems in Minnesota that encourage such free visits for any and all visitors.

The CSC website's mainpage also features a recent event at Macalester and an initiative that everybody needs to encourage greatly: getting much younger kids and their parents, especially students of color and in disadvantaged situations, on track and thinking about post-high school credentials.  The site chronicles a campus visit by kids from the Summer Academy, a summer instruction program provided by a partnership of three charter schools in Minneapolis, and notes these remarks by visiting elementary-age kids: "I will definitely go here" and "I want to go to college next year!"  The freedom of going to college intrigued some of the visiting 5th grade students, with one noting, "You can play video games BEFORE your homework is done!?!"  A Macalester student guide reflected on the event, saying, "You can never start too young to think about college."

--Dane Smith

Another Minnesota voice for post-secondary completion, and an even-handed critique of for-profit higher education

Back to School for Grown-Ups is a relatively new enterprise in Minnesota that shares our zeal for dramatically increasing post-secondary attainment, with special emphasis on grown-ups of all ages who need to re-think, re-educate and re-train in a fast-changing economic world.

The key principal in the firm is Laura Gilbert, who produces books, blogs, research papers, presentations and counseling, all providing sound advice to young and older adults who are trying to navigate the ever trickier and more expensive path to four-year "sheepskins" or other higher-ed credentials.  Her book, "How to Save $50,000 on College" is a pocket-sized guide that cuts through a lot of the confusing fog and expensive obstacles to higher-ed completion.

Gilbert is a life-long learner whose biography fits her philosophy.  She picked up her credentials in stages, starting with a triple major in music from Metropolitan State in the Twin Cities, a master's in industrial relations in mid-career, and a PhD in educational psychology much later in life.

Among her more important contributions recently are a thoughtful white paper, "For-Profit Education Under Scrutiny: Issues and Challenges," issued earlier this summer.  Gilbert succinctly summarizes some of the more appalling abuses of the "bad actors" in the fast-growing field, providing a lesson in how privatizing the classic public and nonprofit functions of education, health and welfare comes fraught with risks.  Her charts showing comparative cost and value for public, private nonprofit, and for-profit rather strongly make the case for the former two rather than the latter.  But Gilbert also acknowledges the strengths of responsible for-profit models, especially through online learning, and concludes that expensive and prone to abuse as they can be, for-profits are a legitimate route and have become a "mainstay" of our sytem.

Gilbert's work features a sharp cut-to-the-chase style and she has a good sense of humor, as her blogs on the Larry Crowne movie attest.  Like many higher-ed enthusiasts who loved the premise of a laid-off "UMart" retail worker going back to school for a degree, Laura and I were disappointed in the "nice" but rather boring and implausible movie.  How can you fall so flat, with such an uplifting concept, and Tom Hanks and Julia Roberts?  And I agree with Gilbert that it would have been a lot more fun to send Buzz and Woody (those souls of aging obsolescence, from the Toy Story trilogy) back to school.

--Dane Smith