Growth & Justice Blog

Of Thanksgiving, underwear and taxes

Heading into the first "official" shopping day of an uncertain season, I found in Charles Fishman's The Wal-Mart Effect a revealing observation about underwear sales. It seems pertinent to my study of consumerism, taxes and government.

A Hanes executive tells Fishman that his company saw big nationwide sales increases from its move into Wal-Mart stores. So big, that population growth and market share gains couldn't account for it all. As analysts dug into the numbers and saw increases across almost every category, one explanation seemed likely.

Consumers were buying more underwear.

The nickels they saved at Wal-Mart weren't "saved" at all. The money went into a drawer as another pair of socks or an extra package of boxers.

Sure, some Wal-Mart customers spent their savings on a can of soup or needed school supplies, but the overall sales numbers didn't lie. They also bought more stuff that they didn't actually need to get through the day.

Small government advocates usually make the argument that government should balance its budget over the kitchen table, like good old American families do. Maybe a few real families have an underwear line item and carefully manage their inventory to historic levels, but in aggregate, Wal-Mart's substantial cross-section of the nation buys more stuff than it needs.

It spends the money because it has the money.

If that were all, so what? The home sock surplus creates jobs for greeters and Thai knitting mills.

Writing about the recent economic shocks, Robert J. Samuelson speaks to the same barely noticed phenomenon.

The “wealth effect” refers to the tendency of people to adjust their spending as their wealth — concentrated heavily in housing and stocks — changes. When wealth rises, spending strengthens; when wealth falls, spending weakens. For the past quarter-century, higher stock prices and home values propelled the economy forward by inducing Americans to spend more of their incomes and to borrow more. In 1982, the personal saving rate was 11 percent of disposable income; by 2006, it was almost zero. The lowered saving rate added about $1 trillion annually to consumer spending — more shoes, laptops, books — out of a total of about $10 trillion. 

In other words, consumer behavior has exhibited an inability to restrain spending or reserve for a rainy day that looks remarkably like "tax and spend."

— Charlie Quimby

Will tax breaks for green investment bring green jobs?

Gov. Tim Pawlenty introduced yesterday his proposed package to encourage green job creation in Minnesota. His "Green Jobs Investment Initiative," extending a variety of tax credits to businesses and investors, has been called "Green JOBZ." 

That nickname is unfortunate.

It's true, part of what he's offering is just JOBZ warmed over — not a concept that will excite JOBZ's many critics. But he's also suggested some other positive steps to encourage private capital investment, expand infrastructure for alternative energy, raise awareness of energy conservation and discourage greenhouse gas emissions.

It's good he's getting out front on the issues of jobs and clean technology development, but he also got out ahead of a legislature-sponsored Green Jobs Task Force that has been laying out how to tackle the green jobs issue. The bipartisan group, which includes legislators, executive branch agencies, business and environmental representatives, had scheduled to bring out a legislative action plan in December and a report in January.

This political maneuvering aside, our question is whether longer-term tax credits will actually have much impact on creating jobs today.

JOBZ's tax breaks were aimed at increasing employment in communities where economic growth was stagnating. It's debatable how many new jobs overall were created. As much as two-thirds were part of planned expansions or simply moved from one place to another.

Green JOBZ faces another hurdle. It's trying stimulate job creation in a relatively young sector that has already received a lot of venture capital scrutiny. Although investment in green industry has been growing, there have also been signs that venture funds have not found enough compelling opportunities to invest in green industry.

A 2007 study by New Energy Finance found that venture capitalists had spent only 73 percent of the funds that had been raised for green technology, and several green tech funds closed their doors that year. More recently, the research group calculated that global investment in clean-energy projects fell by almost 25 percent in the third quarter 2008, and it will likely fall further by year end.

Persuading those investors to put more money into clean technology is a laudable policy goal, but it's a very different challenge from getting a machine shop to locate its new facility in Long Prairie instead of Bloomington.

Gov. Pawlenty's plan offers tax incentives for regional investment funds to invest in Minnesota (only 50 percent of the credits will be targeted for green industry, however). Using tax breaks to boost expected investor returns seems like a good move, but it's also a move any state can duplicate.

Of the more than $13 billion in public and private investment in U.S. clean energy in 2007, nearly $9 billion was made in wind energy, a sector where Minnesota has some advantages. Venture capital funds favored solar energy development, though, with $1 billion of the $2.7 billion they invested in renewable energy technologies. By virtue of geography and technology base, Minnesota will be less competitive for these funds.

Green industry by any name will be good for Minnesota, and it seems churlish to question any well-intentioned effort to grow jobs and lessen our dependence on fossil fuels. But we also should look for the most effective role government can play in encouraging future industry — while addressing jobs today.

For the thousands of Minnesotans who are out of work or underemployed, "offer tax incentives and the jobs will come" won't offer much encouragement. Let's hope the Green Jobs Task Force has more about ideas about creating jobs than Green JOBZ.

Minnesota taxes: Just average

Minnesota 2020's Jeff Van Wychen writes today about a new tax study by Dr. Paul Wilson, Director of the Research Division at the Minnesota Department of Revenue, that shows Minnesota's state and local tax burden is no longer above average among the states.

Minnesota's small government advocates like taxes per capita as the way to compare the relative tax burden among states, because Minnesota's relatively higher average income pushes our ranking higher than when measured on an income-adjusted basis. And higher taxes, they argue, put the state at an economic disadvantage.

Wilson notes several reasons why per capita taxes are higher in high-income states, including higher labor costs and less federal assistance, and he offers a third way of comparing states. His method predicts "average" or "typical" per capita tax burden, given per capita personal income. The predicted number can then be compared to the actual per capita tax to determine if a state's tax burden is higher or lower than average.

The conclusion drawn from this analysis by Dr. Wilson is that Minnesota is no longer a high tax state. After taking into account Minnesota's per capita income, Minnesota's tax burden is typical of the tax burden in other states.

What really matters is not whether Minnesota wins some Grover Norquist low tax contest. The right question to ask is the one Van Wychen poses:

whether Minnesota's drift from a relatively high tax state to an average tax state has contributed positively or negatively to the state's economic performance and quality of life relative to other states.

If we look at Minnesota's rising unemployment rates and lower employment growth since 2002, the answer is clear. The drift toward average tax rates has not been a positive for many individuals or the economy as a whole.

— Charlie Quimby

Met Council looks beyond roads to cope with congestion

Good news: The Metropolitan Council and its transportation planning staff take a realistic view that the Twin Cities area cannot just build its way out of traffic congestion.

The draft version of the Met Council’s 2030 Transportation Policy Plan Update recognizes that many metro area drivers see congestion as a serious problem. However building our way out of congestion by expanding our highways is arguably not the solution but a part of the problem. Says the draft summary, “Instead of providing reserve capacity for decades, new highway lanes can fill up in a matter of months.”

And it’s worth keeping in mind, as we battle with congestion, that the Met Council’s 2005 transportation planning documents found the Twin Cities region to have the second shortest travel time to work among the 25 largest metropolitan areas in the country, based on Census 2000 data.

Given limited resources and the high costs of congestion, the draft TPP says, the metro area needs to pursue alternatives to congested travel, including better use of existing lanes and right-of-ways and better transit. But transit — as well as walking and biking — is more than just a solution to congestion for rush-hour travelers. Alternative modes of travel are important in their own right for providing affordable transportation and access to destinations for all citizens of the Twin Cities region.

Various organizations, including the St. Paul Chamber of Commerce, have raised concerns about the limited East Metro transit corridors and options included in the plan and how that might affect future development in the area. The Met Council’s analysis of congestion and construction comes in a broad-reaching, draft TPP that focuses on mobility in the region and lays out actions the Met Council might take to preserve, improve and expand the region’s transportation system in the context of land use.

The draft TPP recognizes the importance of more compact land use but, unfortunately, only goes as far as offering encouragement in that direction. Using less land for development and transportation could help solve congestion problems because that would reduce the vehicle miles traveled.

A coalition of four transportation and environmental groups recently issued a response to the Met Council’s draft TPP, calling for bolder visions and action and saying, more specifically, that the transportation plan lacks measurable outcomes, fails to identify adequate funding to support its goal of doubling transit ridership by 2030, gives too little attention to bicycling and walking, lacks clarity regarding highway prioritization, and lacks commitment to strategies that will advance more transit-supportive land use.

The Met Council’s draft TPP deserves praise for its suggestion that we can’t build our way out of congestion. However, if we are to reduce traffic congestion and develop a truly integrated, metro-wide transportation system, bolder visions and actions are needed. The Met Council will accept comments on the draft TPP until 5 p.m. on November 6 via its website.

— Skye Stauffer, Growth & Justice intern, and Matt Kane