Growth & Justice Blog

Voters again reject anti-government TABOR formulas

Overlooked  in much of the analysis in this off-year election results were the latest defeats of anti-government "TABOR" (an acronym derived from "Taxpayers Bill of Rights,'' a frequently used title for such efforts) initiatives in two states, Washington and Maine. TABOR formulas are designed to impose arbitrary limits on growth of taxes and appropriations, and most mainstream policy experts dismiss them as unwise and inflexible.    

As the national Center for Budget and Policy Priorities noted :    

Yesterday’s votes in Maine and Washington show clearly that TABOR’s crippling and arbitrary spending limits remain unpopular around the country. Anti-government groups have made serious efforts to enact TABORs in 20 states since 2004 — and they have failed every time. While these groups will likely target other states in 2010, there is little reason to believe they will have more success.

Minnesota has escaped these TABOR initiatives, although efforts to get them on the ballot as constitutional questions have been mounted. Unfortuneately, too many of our elected officials, including Gov. Tim Pawlenty, unwisely got themselves cornered  into signing "no new taxes'' pledges earlier in the decade and Minnesota has been in a state of fiscal  paralysis every since. 

It's reassuring to see that ordinary voters in most states do not fall for the enticing promises of simplistic and arbitrary limits on public resources.  

— Dane Smith

Less Government? We Tried That. It's Not Working.

The Star Tribune's front-page story today finds that "less government'' is the overwhelming consensus "vision'' for Republican gubernatorial candidates. Peggy Lee and most Minnesotans want to know: Is that all there is?   

Leaving aside that this mantra sounds more like hard-right, activist-energizing radio talk than inclusive vision casting — and has to be extremely disappointing to hundreds of thousands of moderate and progressive Republican voters — we need some context here.   

The Price of Government, an official state Minnesota Management and Budget measure, shows that we DO have less government over the last decade, ever since the no-new-taxes religion, like some southern invasive species, got a hold on the North Star State. (See page 13 of the PowerPoint presented at the capitol last week by State Economist Tom Stinson and State Demographer Tom Gillaspy).

The bar graphs clearly show that our governments are using about two percentage points less (15.5 percent in 2008 compared to about 17.5 percent through the 1990s) of our personal income share than those governments were spending when the economy was actually doing better. Huge income tax cuts in 1999 and 2000 left us with chronic  budget crises, and the promised payoff in sustained, tide-rising economic growth didn't materialize, either.  

Wealth concentration at the top got worse, bridge and road conditions deteriorated, public school course offerings were cut, and thousands of working low-income folks lost their health care. And our economy is slumping and beginning to underperform the national average on some key indicators.  

We surely could use some more judicious restructuring and redesign of how we do our government work. But the basic things government provides are essential for our shared prosperity and quality of life.  

NOTE: The Price of Government measure is one of the most comprehensive of all the measures we have to describe the size and role of government. It counts state and local government revenues as a percentage of total income and therefore accounts for inflation, population growth and economic growth. It was instituted at the behest and with the approval of business groups in the late 1980s.

— Dane Smith

Minnesota Poll's progressive majority on health care

As a former reporter for the Star Tribune who wrote scores of news stories based on the Minnesota Poll, I am very familiar with the science of polling and its limitations,  and the crucial importance of context.    Here's some important context for the poll results and the headline that declared "Obama's support declines sharply.''   

 A drop in 10 percentage points on job approval, after the "honeymoon" and late in a president's first year,  is typical, but especially if he's mounting the most sweeping social and economic reforms in decades during the most serious recession in a century.    The coroporate bailouts and continuing war in the Middle East have  angered the left, the bailouts and the expansion of a public role in health-care have infuriated the right, everybody's still worried about their personal finances, and still the president's approval rating is about 20 points higher than his predecessor's.

The concerns about health-care transformation undoubtedly are an overriding factor but it appears that the dissatisfaction with Obama's plan comes from many liberal folks who wish he'd gone further.   Although Minnesotans disapprove of his overall "handling" of health care (45 percent to 39 percent),  there is clear approval of the  "public option'' despised by the right-wing critics (51 percent to 37 percent).   Most in the poll  approve a law requiring coverage (54 percent to 37 percent) and a slight plurality (43 percent to 40 percent) actually favor the overall changes being supported by Obama and his congressional allies.   Most important,  perhaps, the poll showed that about 40 percent of Minnesotans are either worried about losing coverage or are currently uninsured.

We've often made the case that there is a sustained majority in Minnesota who favor the moderate-to-progressive position on key economic and tax-budget issues.   These key issues include support for public education, transportation, public health-care, environmental protection and most of the worthwhile vital investments that our governments provide.    This majority also favors  a fairer and reasonably larger tax burden on those at the top of the income scale,  and polls show it opooses an  inflexible "no new taxes'' orthodoxy.

Dane Smith

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

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

Anti-tax propagandists try again

A recent Wall Street Journal editorial packs up some loosely related facts and delivers a familiar  conclusion — state income taxes motivate people to move.

But let's dig into those facts...

[Note: A slightly edited version of this is cross-posted at Across the Great Divide.]

The editorial, based primarily on a yearly report of inter-state shipping records from United Van Lines, says a record number of Americans moved to other states last year.

Without interviewing the departed, it's impossible to know the reasons for this outward migration. No doubt overall economic prospects, climate, quality of life and housing prices play a role.

Why people move

Well, yes, those are the reasons suggested by actual studies of migration. The Wall Street Journal didn’t interview the 212,917 departed represented in the shipper's data, but the Census Bureau does ask people why they move.

Between 2004 and 2005, for example, it counted more than 39 million changes of residence. Of the 15 million who moved at least one county away (it did not break out answers by inter-state moves), 90 percent gave reasons that were evenly split among work, family and housing.

It did not ask specifically whether people were fleeing taxes — or fleeing cooties, for that matter. So maybe some of those movers who said they moved to take new jobs, look for work, avoid crime, get married, move closer to family or find a better house were really basing their decision on the income tax rate.

Maybe.

By the way, Journal's alarming declaration that "a record eight million Americans — some 20,000 people every day — relocated to another state last year" fails to clarify that the "record" is due to population growth. The rate of about 2.6% relocations is midway between the rates from 2000 and 2005.

The editorial continues:

But one reason to conclude that taxes are also a motivator is because the eight states without an income tax are stealing talent from other states. They are Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming, and each one gained in net domestic migrants. Each one except Florida — which has sky-high property taxes on new homesteaders — also ranked in the top 12 of destination states.

Why the numbers are deceptive

Before you swallow that, let's look at the actual number of households involved in those moves. That's important, because the United Van Lines report ranks its high-move states by the differential between inbound and outbound moves in each state — not whether there's a large number of moves.

Drilling down, we find those seven states in the “Top 12” destinations accounted for 37,302 inbound moves, but had a total net gain of only 5,772 households. Altogether, South Dakota, Wyoming and New Hampshire accounted for a grand total of 390 new households.

Hardly a groundswell.

 Now, let's compare the eight states without an income tax to Minnesota, which ranked number 12 in per capita state and local taxes in 2007. Why, high-income-tax Minnesota had more inbound than outbound moves, too!

Suppose we look at inbound moves as a percent of state population to even out differences among different-sized states. Of the nine, Minnesota has the fourth best inbound ratio, behind Nevada, Washington and Wyoming. And more households moved into Minnesota in 2007 than Nevada and Wyoming combined.

The implication that low-tax states are “stealing talent” is not exactly borne out by the data. Another way to view it is that two states with good quality of life and a strong creative climate are attracting lots of talent, while two other states are drawing a few people with a real estate bubble and an oil and gas boom.

Higher income, less migration

But the Journal just can't help itself. It concludes with an ominous warning to state governments:

The people who tend to be the most mobile in American society are the educated and motivated — in other words, the tax-paying class. Tax them too much, and you'll soon find they aren't there to tax at all.

The highly mobile, well-off taxpayer sounds right, but it simply isn’t true. I’ve written about this before, so let’s look here at some new data.

The Census Bureau also tracks moves by income level. People with the lowest income are actually the most mobile, including those moving between states. Top-earning households — incomes above $75,000 — are the most stable, with only 9 percent changing residence in the prior year, compared to 19 percent at the bottom.

Why some trips cost more

Finally, let’s look at one more misdirection in the editorial, which sent readers to the U-Haul web site to see  how much more it costs to rent a truck leaving a high-tax state for a low-tax state versus one going the other way.

King Banaian was skeptical but still fell for it, citing these examples:

A 26-foot truck from Minneapolis to Sioux Falls from U-Haul was $489, from Sioux Falls to Minneapolis $288. St. Cloud to Rapid City $880, Rapid City to St. Cloud $518.

Let’s help out the econ professor and the editorialists on this one.

First, most moves are local. Movers tracked by the Census Bureau stayed in-state by a ratio of at least 4 to 1, depending on the income group. Most moving equipment rented in a market stays there. In-town moves in Minneapolis are priced at 39 cents per mile vs. 49 cents in Sioux Falls, so let's dismiss any implication that the higher tax state starts out higher cost.

Second, sending units to another state is only desirable if there’s higher utilization at the destination.
I called U-Haul headquarters to ask about the interstate pricing discrepancy, and sure enough, they said they often discounted rates to encourage more equipment going back to cities where more moves occur.

Other explanations

Another view on this subject comes from Wendell Cox, a smart growth opponent, who says housing affordability is the problem.

He looked at the Census Bureau migration patterns and notes that high-tax states like California and New York have been high tax for decades, while exploding out-migration is a newer development.

He says the problem is high housing costs relative to income. Some high-cost locations like Las Vegas are able to attract inbound migration only because their housing is less expensive than neighboring California's.

Should states like Michigan be concerned about continuing to lose population? Certainly. Should Nevada be worried about whether the influx of new people are financially stable? Apparently.

But without better supporting evidence, don't buy any attempts to hang those troubles on taxes.

— Charlie Quimby

Beware of numbers used to sell stadiums — and fight them

A recent Star Tribune op/ed by economist Kenneth Zapp critiques a Metropolitan Sports Facilities Commission-sponsored report that estimates tax revenue derived from local sports arenas. Zapp makes several points commonly raised by opponents of public financing of professional sports stadiums.

First, the report implies that tax revenue from sports facilities would not have been collected had they not been built. This is not true. Every economic study of stadiums has found that professional sports do not create economic value. If people do not have such games to attend, they spend their money on alternative forms of entertainment or events, which are also taxed.

He also notes the analysis does not take into account present value of the future cash flows from taxes and states that it's unfair for other entertainment-related businesses to pay taxes that help build a stadium for a competitor. But he overlooks income taxes in his summary of stadium revenue:

A stadium generates revenue from naming rights, concession rights, advertising, seat licenses, ticket taxes, parking taxes, souvenir and related NFL merchandise sales taxes, media access fees and facility use fees. The commission claims there are multiple uses for a covered venue besides sports; these activities should also pay their portion of the cost.

This is a significant omission, since according to the commission's report [Download Report.pdf], "Over one-half (57%), or $197,700,000, of the total estimated tax revenue is attributable to the personal income tax on professional sports organization payrolls" for the Twins, Vikings, Timberwolves and Wild between 1961 and 2006.

The study did not calculate taxes paid by visiting teams, who pay Minnesota income tax on a portion of the payroll representing the number of games played in Minnesota. I haven't found an estimate of that total, but considering that Minnesota teams have historically lower-than-average payrolls — it seems the out-of-state revenue could be considerable.

Let's assume there were no professional sports teams in Minnesota because we decided not to provide outsized public subsidies. While local entertainment dollars might indeed flow to other taxable entertainment activities and visiting performers, tax revenues would drop unless we changed tax laws.

Here's why.

Even without calculating the actual tax liabilities, visits by out-of-state professional athletes are likely more lucrative for the state, because they have income tax withheld from their game pay, while visiting entertainers pay a 2 percent tax on receipts. A major league baseball player earning an average $2.8 million a year makes $17,284 per game. The Twins play nine home games with in-division rivals, so on average, those teams would presumably pay about $155,000 per player, with the adjusted gross taxed at least at 7.05 percent.

Further, their income is not dependent on gate receipts. In part, it comes from media contracts and economic activity produced in other states. George Steinbrenner pays A-Rod the same to play here regardless of how many tickets we buy.

In our hypothetical world, we may divert our entertainment dollars to dining, concerts, movies and theater, but the overall tax revenue will undoubtedly be less because of the net loss of high-paid employment.

The total loss may not be large enough to matter, it still does not mean the public should subsidize professional sports teams. But it does show we should be cautious when viewing the economic arguments presented by either side.

— Charlie Quimby

Facts don't support the growing government story

While Rep. Marty Seifert's (R-Marshall) recent remarks about scary government encroachment were made at a relatively obscure event, this kind of framing in some version has been heard for years at the state capitol. And it appears to be in the wings for a re-run nationally. 

Rep. Seifert's "pulling the wagon" imagery (a favorite of conservative firebrand Sen. Phil Gramm in his short-lived 1996 presidential campaign) occurred just four days after it was presented in one of the "Big Three" messages advocated for 2008 by the conservative Heritage Foundation. He said:

Today three of the top five employers in the state are State of Minnesota, the University of Minnesota and federal government. I don't know about you, but that is getting to be a little bit scary in terms of fewer and fewer job providers because of more and more regulations and taxes.

You folks are pulling the wagon. And everyone else is riding on the wagon.

In a previous post, I explained why we should not be scared about who Minnesota's largest employers are now. Total public-sector employment as a percent of the total workforce Minnesota has actually dropped since the early 1990s.

Yes, the state is a large employer, but private sector jobs growth — while not as good as anyone would like — is growing at a much higher rate than in the government sector. The number of job creators is also growing, not "fewer and fewer."

But even so, it might be a legitimate concern if government employment in Minnesota were growing out of proportion with other states. So I looked at some other numbers to provide that context.

I'll use Census Bureau and Minnesota Taxpayers Association (MTA) data here, because they allow easy  state-by-state comparisons. (These will not align exactly with numbers I cited in the last post, because MTA rankings use FY 2005 and the Census Bureau data uses March 2006 employment. I've chosen full-time-equivalent (FTE) positions rather than number of jobs for better state-to-state comparisons.)

I looked at government employment in Minnesota and five other states similar in population.

According to the Census Bureau in 2006, Minnesota state government employed 76,795 FTE — half of which were in higher education (35,605) and police (3,300) work. I calculated a ratio between government employees and the state population so we could compare the relative proportion of state residents working in state jobs — since that seemed to be the main beef.

Here's how they compared:

• Wisconsin .0124
• Colorado .0149
• Minnesota .0153
• Missouri .0157
• Maryland .0166
• Alabama .0185

In other words, Minnesota's proportion of state and local employment is about in the middle for similarly sized states.

According to the MTA [Minnesota Compared.pdf], Minnesota ranked 31st among states and very slightly below average in state and local expenditures per $1,000 of personal income. This is the measure of our capacity to pay for services based on the wealth generated by the state's economy. On expenditures per capita, we ranked 12th. This is a measure of cost, but also services delivered per person.

We reject the Heritage Foundation talking point that public employees are "riders" and private-sector employees are "pullers." Both sectors do work of great value for our communities. Both groups pay taxes.

And the story — that more and more people are working for government and fewer and fewer for the business sector — is based on an attitude toward government, not on the facts.   

— Charlie Quimby

Rep. Seifert tells some scary stories

According to the Redwood Falls Gazette, Rep. Marty Seifert received the Minnesota Licensed Beverage Association's Legislator of the Year Award Monday. In his remarks, the House Minority Leader made some comments that we may be hearing again during the legislative seasons.

Seifert said in 1972 the top three job providers in the state of Minnesota were 3M, Honeywell and Dayton-Hudson.

They were big companies that provide good benefits to their employees and families.

"Today three of the top five employers in the state are State of Minnesota, the University of Minnesota and federal government," Seifert said. "I don't know about you, but that is getting to be a little bit scary in terms of fewer and fewer job providers because o[f] more and more regulations and taxes."

"You folks are pulling the wagon," Seifert added. "And everyone else is riding on the wagon."

We're certain Rep. Seifert did not mean public sector jobs do not provide good benefits to employees. After all, he himself draws two paychecks from the taxpayers — one as a legislator and one as an admissions officer for Southwest Minnesota State University.

Instead, he repeats a different and even less supportable horror story: Big Bad Government is bumping off private enterprise.

Here's his story line: Private employment is giving way to public employment in the state; growing regulation and taxes are responsible; and small businesses like bar owners and liquor distributors are pulling the wagon for a bunch of freeloaders.

Picking 1972 for his comparison puts solid data a bit out of reach, but some of the beverage sellers in his audience might recall that a lot of things were different then.

Bars were selling Hamm's and Grain Belt, and two of the nation's biggest brewers were Pabst and Schlitz. Honeywell was in the computer business and weapons business then. Dayton-Hudson was opening its 100th B. Dalton, Bookseller store and was considering selling off its Target discount chain, which had started well but was sputtering.

There's no question Minnesota's corporate employment has shifted from those old guard companies. (Even 3M, which was 57th on the Fortune 500 list in 1972, has dropped to 97th today.) And if the decline of those big, patriarchal employers is your point of reference, these structural shifts in employment may indeed be troubling.

It's plain misleading to imply with the example that big private employers have been displaced by big government. Or that government is the cause of the real pain being felt today by low- and middle-income families.

The Minnesota Department of Employment and Economic Development publishes comprehensive employment statistics going back to 1990. In that year, government employment was 16.2 percent of the total. In 2007, it was 15.5 percent. I examined the 17-year trends line for private jobs growth vs. growth for federal, state and local jobs in Minnesota.

Here's a chart showing growth rates for total employment and government employment [click to enlarge]. You can see the steeper blue growth line for total employment. The growing divergence of the lines is similar for jobs broken out at federal, state and local levels.

Back to Rep. Seifert's statement, it would make sense that as large companies move, restructure and go out of business, the more stable government sector would become relatively "bigger." After all, we don't outsource road maintenance to India, New Jersey hasn't launched a takeover of Dakota County, and the state colleges don't move to South Dakota because the taxes are lower!

Seifert's claim of "fewer and fewer job providers" is simply wrong. If total employment grows and large companies account for fewer jobs, we should actually have more private job providers in the state. And that's the case — from 148,715 in 2000 to 161,300 in 2006.

In another post, I'll show other reasons this "big government riding the wagon" story is — dare I say it? — a fairy tale.

— Charlie Quimby

No, tax cuts don't cause growth

A blogger at Minnesota's Conservative Beacon repeats the common claim that Bush tax cuts are working:

The Commerce department released a report recently stating that the US economy grew a solid four percent in the 2nd quarter, despite a few rough days on Wall Street.

Also, federal revenues continue to increase to higher amounts (and as percentages of the GDP) since the 2003 Bush tax-cuts.

All of this begs the question: If the tax-cuts are helping the economy boom and are increasing tax-revenues (especially corporate income tax revenues), why would any Presidential candidate, Senator or Representative want to undo all of that? What possible positive income could come from it?

The writer is apparently referring to a recent Congressional Budget Office report on federal tax revenue growth. It does show GDP and revenue growth between 2003 and 2006, but it also says:

Two caveats to this analysis should be noted. First, analyzing revenues as a share of GDP does not illuminate the underlying causes of GDP growth itself, including the possible influence on GDP from tax policy.

Second, the economy is recovering from a recession that started before 2003, making the comparison misleading. If you compare per-capita growth from 2001, we've barely made it back to even. The Center on Budget and Policy Priorities has more.

Third, most of the recent income growth went to upper-bracket taxpayers in the form of capital gains. Most taxpayers have seen little real income growth since 2001.

— Charlie Quimby