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  • Growth & Justice is a progressive think tank committed to making Minnesota's economy simultaneously more prosperous and fair. We believe that at a time of deep partisan division, Minnesotans can unite around one goal: a strong and growing state economy that provides a decent standard of living for all.

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December 02, 2009


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A Facebook User

Dane –

Your reference to Hanson’s “Freudian slip” [“when you mean one thing, but you say your mother" as we psych major’s like to say] is interesting because it projects [in the Freudian sense] motives on Hanson that you secretly desire that he hold. Sometimes a cigar is just a cigar and Hanson just might have misspoken, but that would not have served your purpose of blaming “conservative” tax cuts for the budget problems. [See how easy it is to play these word games. ;-)]

Seriously: Tax cuts must always be analyzed in two contexts – which taxes are being cut and what happens on the spending side. Income tax cuts and capital gains tax cuts are good (corporate income taxes are also needed) because they reduce taxes on productivity, which distort the market and create a significant tax burden on Minnesotans greater than the simple dollar-for-dollar transfer from the private to the public sector.

At the federal level, tax cuts did produce more tax revenue. If you look at tax revenues during the Reagan years, they grew year over year except once, and then tax revenues were still higher than in any previous administration. Clearly the problem is not on the tax cut side, but on the spending side, where conservatives did drop the ball big time, especially during the Bush years.

At the state level, with a highly progressive tax system, you ought to expect tax revenue to disproportionately decline in a recession. You don’t need to be much of an economist to figure out that when the top 5-10 percent of your tax base pays most of the dollars that support the state, during recession state revenue is going to decline precipitously. In dollars (the state pays bills in dollars, not percentage of income), high margin tax payers see steeper declines in tax liability as their incomes decline than do low income individuals. High earners personally don't suffer much [by your standards], but the amount they are obligated to the state drops and it's those who have been domesticated to state programs that suffer.

So yes, Dane, the idea that tax cuts alone increase prosperity is a discredited idea, but that is your projection and not actual conservative fiscal policy, which in totality encompasses cutting those taxes that create a high deadweight loss on the state economy and coupling tax reductions with spending cuts based on the criterion of constitutionally limited government.

Ponder that over your next cigar.

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