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

Looking beyond the education demographics

I've been exposed to volumes of research through Growth & Justice's work on a smart investment strategy to boost the post-secondary graduation rate for Minnesota students — especially students of color. I know intellectually why it's vital to the state. As LearnmoreMN summarizes the demographic trends:

[A] dwindling number of high school graduates... a greater proportion of graduates from low-income families and communities of color who traditionally are less likely to pursue post-high school options... Baby Boomers who are retiring... inadequate numbers of college-educated people to meet state job needs.

But to muster the will to solve big problems, human beings need empathy as well as statistics.

Earlier this month, I spent some time reviewing applications to The Page Education Foundation, which offers scholarships for post-secondary study to students of color. This year, Page received about 1,000 applications and will award 600 grants.

While some of these kids are stars from intact families who should have no trouble finding the financial assistance they need, many others are on the margin, with middling grades, low test scores and little family support. You cannot read their applications and remain unmoved by the challenges they face or their desire to succeed.

A young woman from Kenya lives with her unemployed aunt because both parents are dead. She hopes to attend college, but only has been in the U.S. for a few years and her academic preparation is suspect. Another student made it here with his family from a Thai refugee camp. One student's family of eight works a small farming operation and has an income of $17,000. It's not unusual to see kids who are working to help support the family instead of saving for college. Most years, I see an applicant who is responsible for the care of their siblings. One year, I had an applicant whose address was a church  shelter.

And these are the kids who haven't given up or totally fallen through the cracks.

On Thursday, May 22nd, some Page Scholars will be among 100 St. Paul high school seniors being honored for their hard work in earning a local college scholarship. The event is at Rice Park over the lunch hour. It might be nice to show your support there, but the real place we need to show up is in adequately funding the education pipeline that prepares students for this moment.

As a think tank, we're supposed to be research-based, not anecdote-based, and we look for systemic cause and effect, not heartwarming individual outcomes. But what do demographics tell you if you never see the people?

— Charlie Quimby

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.

Income gap: It could be worse

A new report on economic inequality contains some old news. The gap between top earners and the rest of the population continues to grow. For Minnesota, the only good news is, it could be worse.

The study by the Center on Budget Policy and Priorities compared income growth rates in each state for three comparable periods in the business cycle over the last two decades. CNN/Money reports it found:

The income gap between the rich and the rest of the population is widening. In 22 states, the top fifth of families made more than seven times what the poorest fifth took home, according to the report. In the late 1980s, only one state — Louisiana — had such a spread. Meanwhile, in more than two-thirds of the country, the wealthiest saw their income grow more than twice as fast as the middle-class over the past two decades.

In Minnesota, the gap was greatest between the top and middle fifths, with top earners seeing average income gains of 50.7 percent over the past two decades, compared to 28.1 percent for the middle. Compared to other states, our rate of growth in inequality was about average (27th) and the size of the gap between the top and the middle ranked 36th. [Download MN summary pdf]

It's worth noting here that the study looked at average incomes and did not track individual households, which would give a more complete picture of changing prosperity for families. (I've written more about that here.) But the trend — driven by wage stagnation at the bottom and growth in forms of income such as rent, interest, dividends and capital gains at the top — is still unmistakable.

The benefits of economic growth were broadly shared for a few years in the late 1990s — the only period in the past two decades for which this was true — but this broad-based growth ended with the 2001 downturn. Once the effects of the recession were left behind, the trend toward greater inequality quickened, as the incomes of the richest families climbed while those of low- and moderate-income families stagnated or declined.

The report also points out that some government policies contributed to the expanding wage and income disparity, including deregulation, trade liberalization, ineffective labor laws and tax changes.

Many states made their tax systems more regressive during the 1990s. Early in the decade, when a recession created budget problems, states were more likely to raise sales and excise taxes than income taxes. Later in the decade, when many states cut taxes in response to the strong economy, nearly all chose to make the majority of the cuts in their income taxes rather than sales and excise taxes.

With the current recession, states are again likely to shift costs to regressive taxes and fees, while resisting investment in education, infrastructure and social programs that can help increase participation in the economy. If recent post-recession patterns hold, the wealthiest families will see their incomes resume healthy growth; the other 80 percent will emerge farther behind than before.

— Charlie Quimby

Religious progressives on the move in Minnesota

New energy from religious progessives is one of the more intriguing developments of the 2008 political season. And perhaps the biggest event this year in Minnesota around that theme will play out over three days  next weekend at the Depot in Minneapolis. Some pretty big national stars will be on the stage.

Featured presenters at the "Voting Justice, Voting Hope" conference (register here) will include Christian leader Jim Wallis, editor of Sojourner magazine and a prolific author, Ray Suarez, senior correspondent on PBS's  News Hour with Jim Lehrer, and Rabbi Michael Lerner, editor of Tikkun magazine.  In addition to the speakers, there will be more than two dozen workshops, ranging from "Reclaiming the American Values Debate"  to "Prophetic Advocacy 101.'' 

Growth & Justice will have a booth at this event and we'll be talking to conference-goers about our research and advocacy for investing in the common good and raising the money fairly for that investment.

— 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.”

Tax cuts, not aid for struggling families, popular use for surplus funds.

Bob Collins at News Cut reminds us that last time Governor Pawlenty used funds from the state's health care access fund to help balance the budget, he moved the money to the general fund. Though the tax collected from health care providers is earmarked to help low-income Minnesotans obtain health coverage, fewer people were were made eligible for the program as part of the shift.

This time will be different, according to the Governor.

Pawlenty says using the health care fund will be used for other health care "for the disadvantaged, and says nobody will be removed from government health programs. But, he conceded, an expansion of MinnesotaCare will be canceled. [Note: Some might call it a "restoration."] At the same time, the governor proposed a reduction in the state sales tax.

Ah, yes, draw down $250 million of the surplus in what MMA lobbyist now calls "the health care slush fund," shift elsewhere an equal amount formerly allocated for health and human services, and cut taxes $77 million.

Net: $173 million of the deficit reduced this budget cycle at the price of continued backsliding on health care and $179 million lower tax collections next biennium. (Not to mention another  $187 million in reductions to health and human services spending.)

Back in 2002 when the state was facing its prior budget deficit, and before Pawlenty raided fund, the Minnesota Budget Project noted that spending to aid struggling families did not fare too well during flush times, either. Between 1997 and 2001, 52.7 percent of surpluses went to tax cuts and rebates, 5 percent to budget reserves, 0.3 percent to children and families, and -0.2 percent to health and human services.

The Pioneer Press has a good summary of the devil in the details of Pawlenty's health and human services cuts.

— Charlie Quimby

Birth has a bearing on economic mobility.

Last month, the Economic Mobility Project, an initiative of The Pew Charitable Trusts, released “Getting Ahead or Losing Ground: Economic Mobility in America.” Written by three Brookings Institution scholars, the report [Download .pdf] contains some striking findings about economic opportunity in America — particularly about intergenerational income mobility.

The researchers found that children born to parents with income in the bottom 20 percent are highly likely to remain at the bottom in adulthood, while those born to parents in the top 20 percent are almost as likely to stay there.

About the same time Pew was reporting some of its findings, conservative economist Thomas Sowell was busy putting forward his view that we should not be concerned about the growing income gap between rich and poor. Sowell says we should look at income mobility of individuals, and he used data from ten consecutive years of individual tax returns to support his point that there was greater actual mobility occurring than was apparent from aggregate numbers.

While tracking a large number of individuals is better than divining from averages, there are a number of problems with Sowell's sample and his assessment of what's happening. I addressed a few of these in my personal blog, and started a detailed critique, which I decided was too complicated to interest most laymen (my audience) and not technical enough for experts.

Let's just say I have concerns about using movement across quintiles of the population as a measure of economic mobility, because for every movement up, someone else gets moved down, even if their actual earnings did not decline. This is a potential issue with interpreting both the Sowell and the Pew studies.

Of course, establishing that the poor are already upwardly mobile buttresses the conservative argument against government spending — "income redistribution" — to increase the chances that a person from a poor family might achieve a better life. Why invest more in early childhood, child health and public education, if low income people already do it on their own? (A least, the "good" low income people.)

The Pew study followed family fortunes from one generation to the next, matching parents with their children's economic attainment 30 years later (see Chapter One of the report).

Americans’ optimistic views about mobility and opportunity in America may stem from the fact that two out of three children have higher levels of absolute income than their parents. That family incomes rise over a 30-year period is not surprising. In fact, more children might have advanced beyond their parents’ income if economic growth had been higher and more equally distributed over the past 30 years.

But as economic growth slowed,

[A]n individual family's fortunes have become more dependent on the opportunity to compete with other families for the economy's rewards. The hope that increased opportunity (or relative intergenerational mobility) would offset the effects of slower growth or more unequal incomes is not supported by most evidence. Research, though mixed, suggests that the rate of relative mobility has not changed much since 1970 and, if anything, it may have declined.

Of particular interest were findings on mobility at the top and bottom of the population. The figure shows "children born to parents with income on the bottom rung of the ladder are highly likely (42 percent) to also be in the bottom rung in adulthood, while those born to parents on the top rung are very likely to stay at the top (39 percent)."

When wealth was considered, the likelihood of sticking in the same quintile was was similar, with 36 percent born at the bottom remaining there, and 36 percent born at the top staying at the top.

The report also includes chapters on the role of education, and on mobility differences between blacks and whites and men and women.

— Charlie Quimby

[Click to enlarge]

Progressive taxes AND real prosperity

Groups such as Minnesota Citizens for Tax Justice have been pointing to evidence since the mid-1980s that fair and progressive taxes do not necessarily hinder economic prosperity and growth. That argument is a central tenet here at Growth & Justice, and we've been a leader making the case for a more progressive tax structure in Minnesota since our founding five years ago. We're not territorial about this distinction or this issue and we're always happy to see other groups take up the fight.   

The latest to weigh in is Minnesota 2020 fellow Jeff Van Wychen, who has also worked with us on tax-and-budget issues, in a study that correlates progressity of taxes with indicators of economic vitality and quality of life.   

In an impressively documented study, Van Wychen shows that:

States with progressive tax systems do at least as well as states with more regressive tax systems in economic performance, business climate, and general livability...Why is this?  One explanation is that states with the most progressive tax systems are better able to finance the educational and transportation infrastructure and the public services that a modern economy requires because they don't shift a disproportionate share of the burden of paying for these investments to households with the least ability to pay.  The loss of high income households due to progressive taxation is offset by an increased ability to pay for public investments.

Despite the careful and understated tack taken by Van Wychen — and a finding only of a "slight tendency'' for states with more progressive tax structures to actually perform better economically — his work drew a sharp critique from conservative Minnesota Free Market Institute Fellow Craig Westover, and a counter-reply from Van Wychen.   

Westover, as usual, poses thoughtful questions and counterpoints but without evidence implies bad faith when he dismisses the study as "little more than (an) attempt to support a partisan position,'' and of "not even trying to get it right.''   

We agree with Van Wychen that if progressive taxes (in shorthand, tax rates that are higher on higher incomes than in states with regressive tax structures) really are bad for business, that evidence should have come through on at least one of his study's six bar graphs representing rankings of states on economic vitality measures.   

Moreover, for two decades, it's conservatives who have been the aggressors on this correlation front (progressive taxation is bad for rich investors) in their relentless crusade to undo the New Deal and the progressive tax structure that created it. And finally,  even Westover acknowledges that Minnesota was near the top on every business and life quality measure.   

Despite our decline in relative tax progressivity since the big income tax cuts earlier this decade, we still rank 11th in progressivity. If any state has done it right in matching progressivity and prosperity, it's us.

— Dane Smith 

Falling behind Wisconsin and Peircing analysis on states' fiscal woes

For years I've worked this friendly Minnesota-centric shtick about how good ol' Wisconsin is our closest relative, a kind of sister state that has a very similar history, culture and progressive instincts.  But the punch line is that they are cheeseheads and Packer fans after all, and just a little behind us for the title of Paragon of Progressive States, and not quite as far above average as a result.

  It's time to drop that routine from the repertoire and to acknowledge that the Badger State is more progressive and far-sighted economically than the Gopher State.  Lori Sturdevant's excellent Star Tribune OpEx piece and Q&A with Wisconsin Gov. Jim Doyle Sunday provides more evidence that Wisconsin is moving ahead with aggressive efforts to ensure more access to affordable higher education and health-care coverage.   Higher taxes (on cigarettes) and an imaginative partnership with business helps pay for this "human capital investment surge'' to the east, Sturdevant writes. 

When I was doing research in the mid-1980s for the Star Tribune for a fiscal study of Minnesota and other states, Minnesota unquestionably was one of the biggest spending states (and our economy was doing fine).  We ranked significantly ahead of Wisconsin on the bottom line:  state-local taxes and state-local spending as a percent of income.   That hasn't been true for several years now.   Latest figures from the Minnesota Taxpayers Association (not to be confused with the anti-tax League) show that Wisconsin ranks 10th in state-local taxes as a percent of income and Minnesota is 23rd.   On state-local spending as a percent of income, Wisconsin is 23rd and Minnesota is 31st.   Watch for right-wing business interests in Wisconsin to start making exaggerated claims about employers and jobs fleeing to low-tax Minnesota.  Boy that's going to feel weird.

Meanwhile, Neal Peirce, one of the nation's foremost authorities on the states and their governments, has produced a strongly persuasive case for states to reinvest, focusing on nation-state California.   His latest nationally synicated column makes the case and these excerpts get right at it:

Many states have never fully recovered from the sharp cutbacks they made in education, health coverage and child care in response to the economic slump of 2001-2004 that was triggered by the technology stock slump and the 9/11 terrorist attacks. And inflation is driving up the cost of government services.

So should governments just slash their budgets willy-nilly, hoping for a better day?

No. That's the firm opinion of Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto. Levy focuses his argument on California, but it fits most of the country. We have strong growth sectors in Internet services, biotechnology, trade, finance and entertainment. But with a tidal wave of skilled baby boomers soon to retire, our work force will include fast-rising numbers of Latino and Asian immigrants, their children and grandchildren -- many of them lagging in the critical educational skills needed in a high-tech, intensely competitive global economy...

But look at what California has done instead (of investing in education). From 1984 to 2008, it let its per capita spending on prisons increase 126 percent while its per capita spending on its public universities -- once its claim to world fame -- declined 12 percent. "Prisons," the Sacramento Bee editorializes, "are sucking the life out of higher education in this state -- and thwarting the aims of economic advancement and social mobility."

So what's Schwarzenegger's solution? Shorten sentences of 28,000 prisoners, saving $1 billion by the next budget year -- but still go ahead with his program to build 53,000 new cells at a numbing cost of $15 billion for construction and debt service.

A sane California, Levy argues, would raise taxes $7 billion this year, (our italics) recession notwithstanding. The increase would be about one penny out of every $2 that Californians -- whose aggregate income is about $1.5 trillion -- actually earn. The collective family of California, he suggests, can take the one cent from eating out or buying a fancy car and put it into education -- a small enough sacrifice compared to the kinds of tough decisions our grandparents had to make during the Great Depression.

Dane Smith