Growth & Justice Blog

The anti-government theme and the (alleged) "fall of conservatism''

There’s a temptation in the punditry business to attach too much meaning to the present, to excitedly say "never before,'' and to declare the  "fall of'' and "death of''  this or that.   And in my time I've seen too many premature pronouncements  _ of the death of God, of the decline and fall of liberalism, and even the end of history _ to get too excited.   But George Packer in the latest New Yorker has written an eminently readable treatise  about “The Fall of Conservatism.’’   It was referenced in a Star Tribune editorial Saturday about the Minnesota Republican Party’s state convention, and the Packer piece promises to be prime grist for the mill this summer. 

Packer quotes conservatives themselves who fear that the movement is out of ideas and intellectually fatigued and he draws some amazing admissions  out of Patrick Buchanan about how Republicans consciously and aggressively exploited southern white fury over the civil rights movements to build their counter-attack in the late 1960s.   Packer also does a good job sketching out broader and more defensible non-economic motivations for the rise of conservatism:  concerns about “the chaos of the cities, the moral heedlessness of the young and the insults to national pride.’’ I've always maintained that "liberalism'' got to be a dirty word because of "free love'' and drugs and flag-burning and goofy dalliances with Marxism, not because of its efforts to alleviate poverty and social problems and gross inequalities in wealth and income.

And Packer gets closest to explaining the conservatives' strategic mistake when he cites David Brooks’ analysis about how conservatives overreached with their hostility to government.  “An anti-government philosophy turned out to be politically unpopular and fundamentally un-American…People want something melioristic, they want government to do things.’’  And in the end, because of a very contradictory conservative view of government as limitless when it comes to security and national defense, conservatives after almost 30 years of dominance  “hadn’t made much of a dent in the bureaucracy, and they had done nothing to provide universal health-care coverage or arrest growing economic inequality.’’   Packer goes on to quote conservative David Frum as saying that “smaller government is no longer a basis for conservative dominance.’’   And he points to young conservatives like Ross Douthat and Reihan Salam who are pushing progressive ideas like wage subsidies for low-income workers and tax credits for children with families.    

I don’t want conservatism to fall or die, anymore than I want yin to wipe out yang or night to eclipse day.      And it doesn’t matter what I think because conservatism and the great ideas it stands for _ individual and market freedoms, personal responsibility,  family values, respect for the past, and religious convictions _ will and should always be with us as we try to build a better world.   I just think conservatism needs to return to the healthy accommodation its adherents used to have for other principles _ equality of opportunity, social justice, and a respectful faith that community and the “we” are at least as important as the individual and the “I”. 

Dane Smith

Thoughts on the last session

We didn't have any major explosions. Everyone thought we would.
— House Minority Leader Marty Seifert

At the end of the day everyone has to walk away from the table with something they care about. It can't be a winner-take-all philosophy.
— Revenue Commissioner Ward Einess

It's the end product that matters, and I think the end product is very good.
— Gov. Tim Pawlenty

It was the most successful legislative session in the last decade.
— House Majority Leader Tony Sertich

The most productive Legislature in a very, very long time.
— House Speaker Margaret Anderson Kelliher

As history looks back on this session, it will look back very kindly. We did a lot of good things. We've got a lot of challenges ahead of us.
— Senate Minority Leader Dave Senjem

We're not there yet, Minnesota on universal access, we're not there yet, but we're on the path.
—  Senate Majority Leader Larry Pogemiller

Take it from whichever political slant you prefer, the participants in the last legislative session are putting a positive spin on their work. By and large, congratulations are deserved all around.

Our job, though, is to look at the end product from an economic policy and social justice standpoint. A couple points stand out.

1. The budget solution is only temporary. The Legislature was not able to repeal a slowing economy, rising energy prices, growing unemployment and a health care system that is unaffordable for a growing number of Minnesotans. In the next biennium, the Governor and Legislature will still have to face the need to increase revenue. Cutting expenses sounds good until it gets down to specifics.
2. We need long-term strategies, not short-term fixes. Because they are of such high value, the building blocks of prosperity — education, infrastructure and affordable health care — have become the objects of budgetary brinksmanship. Instead, we ought to to be developing long-term strategies to invest in the assets that fuel our economic growth and prosperity.
3. Subsidies still need better scrutiny. JOBZ was a standoff, and the Mall of America expansion will be funded in part by exporting the costs through a tax on shoppers. Now, can anyone tell us what would've happened if there were no taxpayer subsidy of MOA parking? Were they going to relocate to South Dakota?
4. Property tax caps are about state politics, not helping local governments manage their budgets. While mayors are being diplomatic, the associations that represent cities and counties tell it like it is. "We think that in this first year, it's bad," said Jim Mulder, who heads the Association of Minnesota Counties. "We're really concerned about the second and third year is that it could be horrendous."

— Charlie Quimby

Dropout costs are too big for the state to ignore

On yesterday's Midmorning program on MPR, Superintendent of St Paul Public Schools, Meria Carstarphen, joined John Bridgeland, CEO of Civic Enterprises, in a conversation on high school dropouts in Minnesota. 

Bridgeland authored a study in 2006 that surveyed high school dropouts [Download pdf] and found that the problem is far worse in the nation's cities than in suburbs. Supt. Carstarphen serves on a Growth & Justice steering committee that is developing a “Smart Investment" strategy for education in Minnesota. Their conversation tracked closely with our analysis on the staggering social and economic costs of the high school dropout epidemic.

According to the 2006 American Community Survey of the US Census Bureau, the median earnings of a worker with less than a high school diploma are just a little over $19,000, whereas earnings for an individual with a high school diploma rise to $27,500. The cumulative difference in lost income totals nearly a half a million dollars over a lifetime.

Said another way, the individual who finishes high school gains substantially higher income; society and the taxpayer gain as well.   

Research commissioned by Growth & Justice confirms this impact in Minnesota. Lifetime taxable wages in the state grow approximately $251,900 for every non-graduate who becomes a graduate. Economic analysis by Henry Levin and Clive Belfield estimated that the increased tax revenues, plus 10-20% reduced criminalization and lower welfare and government health program enrollment, produced a social benefit to Minnesota of about $1 million for every additional graduate.

Conversely, every dropout will cost the taxpayers $1 million. 

With nearly 10,000 new dropouts each year, the opportunity cost to the state increases almost $10.6 billion annually. The cost of dropping out of high school is clearly too expensive — for both the individual and the state. Increasing high school graduation rates should be among the state's top priorities.

— Angie Eilers

Like politics, all taxes are local.

When Minnesotans argue about taxes, we usually start with the personal state income tax, which is used to support the persistent claim that we're one of the highest-taxed states in the nation. (Dane Smith deals with that here; the Minnesota Taxpayers Association recently ranked

Minnesota

23^rd for state and local taxes as a percentage of income. Looking solely at state income tax also pushes Minnesota higher in the rankings because other states raise more revenue at the local level.)

Severance taxes on mining have far less visibility in Minnesota, because we derive such a small portion of annual revenues from taconite extraction (in the $7 million range). By contrast, Alaska funds about half its state budget from oil revenues, and Wyoming is close behind. These resource-based taxes have the added advantage of "exporting" some of the state's tax burden as the oil, gas, coal and other minerals are paid for by others.

Still, the tax arouses feelings on the Iron Range, as Minnesota Brown reminds us:

What Pawlenty and many outside the Iron Range often fail to understand is that our taconite tax revenue, while significant during good times (and not all times are good), is not a secret pot of cash that we use to buy beer and ammunition. It is what mining companies pay IN LIEU of PROPERTY TAX. Mines own or lease thousands of acres of enormously valuable land in northern Minnesota and they don't pay a dime in property tax. Suburbs raise their revenue from those sleek office buildings along the freeways and in overpriced residential homes. The Iron Range raises its school and community funds from taconite taxes, and per capita we get less money over time as a result. But wait, there's more. All the while over Range history a portion of these taconite taxes have gone to the state general fund or to the University of Minnesota fund, money that has benefited more than a million people who couldn't find the Iron Range on a map.

Gov. Pawlenty frequently laments any Iron Range project or program that doesn't rely exclusively on our taconite taxes. We aren't deserving of general state funds, because of our financial privilege. (Anyone who has been to my native Iron Range understands my implied sarcasm).

There are good reasons to have a mixed basket of revenues (fairness, more stable revenue sources). But instituting an array of taxes and fees can lead to undesirable effects, too (obscuring who's paying for government, dedicating funds to narrow purposes that restrict flexibility in tough times).

One side effect of the anti-tax climate in the state has been to build credence for the consumerist notion that every tax dollar should be earmarked for a purpose that benefits the person or corporation paying in. In one sense, like politics, all taxes are local, but this mentality can only reduce the kind of wealth-building investment in education and infrastructure that benefits all Minnesotans.

Government should be accountable for spending, of course. But accountability is about measuring what the money does, not just remembering where it came from.

Tax rankings: When "facts" obscure the truth

A letter in the Park Rapids Enterprise contains a common set of distortions about taxes in Minnesota. I've debunked similar statements before, but I guess one broken record deserves another.

Passage of Minnesota’s largest tax increase in history by the DFL controlled legislature has triggered a barrage of editorial comments both pro and con. Although most have expressed strong opinions, few have provided factual data in support of their positions. Here are the facts regarding Minnesota’s tax burden per capita relative to the national average and comparable surrounding states:

Minnesota, ($2,871), 4th highest; Wisconsin ($2,283) 12th; national average ($2,000).

These data were last revised March 6, 2008 by the US Census Bureau and represent an accurate, non-partisan viewpoint. I am certain most reasonable people would agree there is no logical reason why Minnesota should be the 4th highest taxing state in the nation and substantially above all surrounding states with similar geographic and demographic characteristics.

The 10-year, $6.6-billion transportation bill might qualify as the "largest tax increase in history" because the amount funded — to start making up for 20 years of neglect — covers a longer span than typical revenue bills. It also gets called out because legislators  spelled out the cost in the bill, unlike the increases in tuition, fees and property taxes that have fallen on taxpayers since 2003. If all those "no-new-taxes" increases had been put in one, 10-year bill, they'd add up to far more.

Now, what about those facts?

Though I haven't found updated per capita rankings the letter writer attributes to the Census Bureau, the Bureau tax rank data covers only state taxes, not local sales and property taxes. Using only state taxes for comparison distorts the relative tax burdens, since service costs for transportation, education, etc. are borne at different levels of government state-to-state. Relative dollar amounts per capita are also misleading, since states have different average incomes and costs of living. A poor state has less revenue-generating capacity than a wealthy state.

(The Census Bureau's most recent 2004 ranking of state revenue per capita shows Minnesota at 18th. Alaska and Wyoming, with their small populations, no income tax and large mining and oil royalties, rank 1 and 2.)

A better measure comes from the Tax Foundation, which includes state and local taxes and calculates tax burden based on a state's total income. Using income is appropriate because it reflects the overall capacity to pay and does not count every two-year-old in the census as if they were taxpayers.

By this more complete measure, Minnesota ranks 11th, 0.8% above the median for all states.

While there are legitimate reasons to compare our level of taxation with other states, numeric rankings are among the least useful measures — except to make a political point. Clearly, using the "4th highest" ranking suits the anti-tax argument that Minnesota taxes are "sky high" far better than saying "8/10ths of a percent above average."

Repeating this sort of thing over and over does not make it true — but can make people believe it. So we have to object, whenever the "facts" are used to paint a false picture.

— Charlie Quimby

Accounting for taxes not collected

There may not be too many Minnesotans who'd consider the Minnesota Tax Expenditure Budget [Download pdf] a "great read," as Katherine Blauvelt calls it. But chances are most would who read this blog.

Her post at Minnesota Budget Bites explains: Because tax exemptions, deductions, credits and lower tax rates forgo revenue in order to advance a certain policy, they function much like program spending.

>>>>>

On April 1st, state and federal governments can be counted on — not for April Fool jokes — to start announcing prosecutions of tax cheats over the next two weeks.

Out in Western Colorado, where I go to escape winter — not Minnesota taxes — a local story popped up yesterday, too.

A former Delta School District superintendent has been charged with filing a false tax return, according to a news release from the U.S. Attorney for the District of Colorado.

Laddie Livingston, 67, of Paonia, allegedly filed a false tax return in 2003, according to U.S. Attorney Troy Eid.

[...]

When asked why Livingston is being charged five years after allegedly filing the false return, U.S. Attorney’s Office spokesman Jeff Dorschner said simply, “It can take that long.”

Plus, they had to wait for Tax Charges Filing Day.

— Charlie Quimby

Health care fund shifts are no cure for the budget

One of Gov. Pawlenty's solutions for balancing the budget is something he's employed before — shifting surplus Health Care Access Fund (HCAF) money to the General Fund. (He's also moving some health-related costs now paid for out of the General Fund to the HCAF for a total shift of $400 million.)

It may look like a surplus exists because the state simply collects too much from hospitals and health care providers. But at least part of the surplus is the result of raising the eligibility bar for MinnesotaCare and serving fewer people, after raiding the fund the last time the governor needed a no-new-taxes budget fix.

Back in 1992, the health care community reluctantly agreed to the 2 percent tax based on a commitment that the funds would be reserved to give more Minnesotans access to preventative and primary care, which in turn would lower overall statewide health care costs.

No wonder they're calling foul now.

A recent commentary by Dr. Jack Bert calls the proposed shift "not only immoral but unethical" because the money could be used to extend care to patients who presently can't afford or don't qualify for other insurance programs. As a result, these patients are often cared for free by the very doctors and hospitals being taxed to help them afford insurance.

Dr. Bert could've also called the shift "pound foolish."

Between 2001 and 2004, the share of Minnesotans with employer-based health insurance declined from 68.4 percent to 62.9 percent. While enrollment in MinnesotaCare rose during most of this period, it wasn't enough to offset the decline in private coverage.

MinnesotaCare enrollment began to fall from its 2003 peak by about 23 percent over the next three years. In the first two years of declining enrollment, uncompensated health care costs — charity care and bad debt, largely from Minnesotans who simply can't pay — jumped 40 percent, according to a 2007 Minnesota Department of Health report [Download pdf]. The rise, adjusted for inflation, occurred after a period of relative stability [click to enlarge the graph].

The impact fell largely on taxpayer-supported, county- and city-owned hospitals, where uncompensated care averages 4 percent of total operating expenses, driven by costs at Hennepin County Medical Center, which delivers nearly 75 percent of the $45.2 million of uncompensated care in government-owned hospitals.

With the addition of care provided by private hospitals, physicians and clinics, the statewide total cost is about $250 million.

A 2006 preliminary report [Download pdf] from the Health Department estimating the cost to cover all of Minnesota's uninsured stated:

Explicitly funding [uncompensated] care by providing insurance coverage would reduce the need for other cross-subsidies that are currently built into the health care system, such as
public subsidies to offset the cost of uncompensated care (e.g., over $130 million in federal and state payments to Minnesota hospitals were made in 2004 to offset these costs) or cross-subsidies that are currently being paid by people with private insurance who pay higher prices to cover the cost of uncompensated care provided to the uninsured.  Indeed, one of the original premises behind the MinnesotaCare program was that a significant portion of the program’s spending would represent a shift of funds that were already in the health care system, as opposed to new spending.

So is shifting surplus HCAF dollars to pay off non-healthcare expenses the best use of the money?

I haven't found a definitive estimate of cost cost avoidance and cost savings from extending MinnesotaCare coverage, but a 2003 University of Minnesota Study [Download pdf] found that

a one percentage-point increase in MinnesotaCare enrollment was correlated with a $2.19 decrease in uncompensated care spending per capita.

Translated into system-wide savings, between the 1996–1999 study period,

hospitals spent $58.6 million less on uncompensated care than they would have without the program.

A 2006 Wisconsin study of its BadgerCare program [Download pdf], similar to MinnesotaCare, found even larger cost reductions (1 percent increase in BadgerCare enrollment resulting in $3.67 decrease) as more low-income families enrolled.

Based on a quick calculation using numbers from the Minnesota reports, a 1% increase in MinnCare enrollment would appear to cost the state about $2.1 million — it pays about 40 percent of the insured's cost — and would save $11.3 million in uncompensated care costs. (Children are cheaper to cover, and the payback on their preventive care may be higher than average.)

Take my number with a big grain of caveat, but it suggests this is worth a closer look by analysts.

Forsaking bigger future benefits to save a few dollars immediately is a real temptation at budget crunch time. And as Dr. Sylvia Sekhon says here, this isn't the only tempting health-related maneuver in the Governor's revised budget.

Here's a case where the Governor ought to listen to medical advice.

UPDATE: A Dolan Media story reports that a 2003 law, passed after the last time HCAF funds were used to plug holes in the budget, prohibits such shifts. The Governor's office contends it's allowed, because the shift would allow the state to avoid cuts to health care programs.

— Charlie Quimby

Tax Policy: When is a good time for reform?

Here's how a Star Tribune editorial framed House Tax Committee Chair Rep. Ann Lenczewski's business tax reform bill:

Lenczewski's bill does what experts consistently urge. It eliminates a raft of special tax breaks in favor of a reduction in the corporate-tax rate paid by all — taking the rate down a full percentage point, from 9.8 to 8.8 percent.

[...]

Each of the tax breaks Lenczewski's bill would eliminate has powerful defenders, and is in the tax code for defensible reasons.

Everything in the tax code got there because of "defensible reasons," which are not always the same as sound tax principles.

We agree that lowering corporate taxes is a good idea, but we also agree with Rep. Lenczewski. At the very least, cutting business taxes must involve some kind of deal to replace the lost revenue — and supply side economics won't cut it. And as she understands, a revenue-neutral bill would simply keep us stuck where we are. Her bill would generate $100 million more in fiscal 2009 than the Governor's plan.

Business owners and investors would rather keep this unpopular tax than accept a cut and pay their share some other way. Here's why.

A tax levied on business is typically shifted to consumers (in higher prices) or to labor (in lower wages). Only after the first two shifts occur is any remainder borne by the business owners (in lower rates of return). Why trade subsidies and tax breaks — or worse, higher personal income taxes — for a cut in a tax you only have to pay a portion of?

The business tax eventually falls disproportionately on people with lower incomes. The Minnesota Revenue Department calculates this impact in its Tax Incidence Report [Download pdf]. The table shows the Minnesota Effective Tax Rates for 2009 by Population Decile, where you can see the lower half of earners pay a substantially higher percentage of their income in passed-through business taxes.

This makes business taxes virtually invisible to those paying them — that is, to the consumers and employees effectively paying them. In fact, many consumers support higher taxes on business because they don't understand the pass-through effect. 

Like scattershot fees, indirect or invisible taxes may be politically expedient ways of raising revenues, but they make it more difficult for taxpayers to fully appreciate how they pay for government services.

Unfortunately, most measures being considered to fix the budget deficit will increase the burden on middle- and lower-income households. Regressive sales taxes, fees and cuts to programs that serve the working poor drop a triple whammy on people already struggling to get by.

Now — while we're trying to deal with a state budget deficit — may not be the best time to work out such a fundamental issue of tax fairness. But if not now, when will we?

— Charlie Quimby

Well Said, Mr. Nobles, and Happy 25th

It was about 20 years ago and the Office of the Legislative Auditor was getting attention for a series of tough investigative reports on questionable behavior by public officials and poor performance by state government,  which back then was completely dominated by DFLers at the executive, legislative and judicial branches. I was a reporter for the Star Tribune and was impressed by the competence and toughness of the watchdog agency and its director, Jim Nobles. So I wrote a story about Nobles and conveyed the consensus at that time, held by both parties, that he was an inquisitor of unquestioned fairness and tenacity.   

Fast forward to last week and Nobles was in the spotlight again for his agency's tough analysis of Republican Gov. Pawlenty's JOBZ program and the deteriorating state of the state's transportation system. Britt Robson of MinnPost put together a spot-on Q&A with Nobles, focusing on a question about whether the agency was anti-Pawlenty and whether "truth has a liberal bias.''

Nobles' response was a classic statement of the good-government principles that Minnesota has long prided itself on, and which need to be reinforced as we move toward more investments in education, transportation, health-care access and other progressive goals.

MP: So you don't subscribe to the idea that the truth has a liberal bias?

JN: [laughs] No. You know the only way in which that might be true is that I really believe in the important role government can play. But I also honestly believe that once an agency is given a responsibility, it has to be fulfilled in a very serious and cost effective way. I want to bring good value to government. That tends to make me say government is important, if for no other reason than it is extracting a lot of money from the citizens and needs to use it effectively. So I am not one of those who just throw up their hands at government altogether, say they are just a bunch of slugs wasting our money. I believe we can take money and do good things. But I believe you really have to work hard and set high standards. I would like all of government to work the way I manage this office, with great intensity.

Nobles has been the epitome of grown-up integrity and a force for good in Minnesota's public sector for 25 years. He and his office, which had a good reputation before he arrived in 1983, deserve a salute.

Dane Smith

: 

A strange way to help Minnesota families

Suppose you are in a working family, just barely getting by, in a state where “compassionate” tax-cutters say they are looking out for you.

If you’re in Minnesota, you’ll hear right away about a sales tax cut that benefits you hardly at all, while in the fine print of the same budget proposal  you might be among the more than quarter million  households who would lose a tax refund worth at least 30 times that much.

Here’s how that works:

The news release announcing Minnesota’s Gov. Tim Pawlenty’s revised 2008-09 budget proposal was headlined:               

GOVERNOR PAWLENTY PROPOSES BUDGET BALANCING PLAN; INCLUDES SALES TAX CUT TO HELP MINNESOTA FAMILIES

Further down in the detail of the actual budget document [ Download pdf ] was this item:

Adjustment to Renter's PTR

"PTR" is property tax refund, and the governor's "adjustment" lowers it by 20 percent. The cut doesn't help the current budget — it saves about $34 million a year starting in 2010 — but it does resurrect a move Gov. Pawlenty tried back in 2005, as City Pages then reported:

If he has his way, renters' credit will be slashed significantly beginning in fiscal year 2007. On average, renters will see a 20 percent decrease in their refund the first year … while some might not see any refund from the state of Minnesota at all.

Rather than fixing the current deficit, Pawlenty is trying again to give renters less money back for the portion of their rent that goes to pay the building owner's property taxes. According to the Minnesota Council of Nonprofits (MCN), over 271,000 households received renters' credit in 2007.

Administration officials argue that property taxes were reduced in recent years on rental property, so less relief for renters is necessary. But renters did not necessarily benefit from those tax reductions;  rents did not necessarily go down. 

Further, it must be noted that when efforts to eliminate tax breaks are proposed for high-income earners or corporations, tax-cutting enthusiasts tend to insist that the proposition is nothing more than a tax increase.

And for the renting households affected, this proposal certainly functions as a tax increase. It means they will effectively pay a higher percentage of their income in taxes, according to analysis done by Jeff Van Wychen of Minnesota 2020.

But let's put this in plainer terms. The “adjustment” imposes a sacrifice on those of us who can least afford it.

Renters who receive the refund for 2008 must earn less than $50,340. Statewide, roughly 29% are seniors or persons with disabilities, but in some rural counties the percentage can be twice that high [Download pdf ]. A 2006 study  by the National Low Income Housing Coalition found the average Minnesota renter made $11 per hour, and a Minnesota Housing Partnership study showed rent in Minnesota increased about 6 percent between 2000 and 2005, while the average income for renters went down by 15 percent.

Given increased foreclosures in Minnesota, it's safe to assume the number of financially stressed renters will go up.

But what about that sales tax cut to help Minnesota families?

Well, it will help some families, just not many of those losing out on the renter's credit.

As you can see in the table attached, households with modest incomes typically don't spend much of their budget on taxable items. [Cost of living budgets are shown for two Minnesota families based on calculations by the Jobs Now Coalition. The "Clothing" line item includes "other necessities."]

For a family of four making $50,000, most of the sales taxes they pay are levied against businesses and passed on to them in the price of products and services. It's unlikely they'll see any 0.125% business sales tax savings passed on to them through lower prices.

The Governor says his sales tax cut would save taxpayers $77 million during the current budget period. A fair estimate is that it would actually save only about $3 to $4 a year for a family earning $50,000, assuming 5% of their budget is spent on taxable items.

Meanwhile, if the Governor’s proposal passes, the average Minnesota renter will get $119 less in their renters credit — and 11,200 households won’t get any renters’ credit at all.

So much for helping Minnesota families.

— Charlie Quimby

Based on data provided by the Jobs Now 2007 Cost of Living in Minnesota Report, an estimation of minimum levels necessary for “liveable income.”