Growth & Justice Blog

Recommended Reading: Ember Reichgott Junge on charter schools, and John Watson Milton on Senate Majority Leader Nick Coleman Sr.

For lovers of Minnesota, for history buffs and for students and practitioners of public policy, I highly recommend two outstanding books released this week.

One is "Zero Chance of Passage: The Pioneering Charter School Story,'' by former state Sen. Ember Reichgott Junge, a key state leader in education, human services, and governmental redesign and a primary champion of the school-choice and charter school movement of the 1980s and 1990s.  Reichgott Junge skillfully weaves the story of emerging education innovation in Minnesota, from the influence of union leader Albert Shanker, through Gov. Rudy Perpich's bold effort to push through public-school choice, to her own championing of the fights for post-secondary options and finally, Minnesota's emergence as the leading model state in the charter school movement.   Controversy still surrounds charter schools, but they are here to stay, and I'm personally glad that this option was available when my own daughter sought an alternative to her big public high school a few years ago.  (If you buy the book online between 2 p.m. and 3 p.m.on May 9, Ember tells me, there's a chance amazon.com will help with promotion.) 

The other is "For the Good of the Order: Nick Coleman and the High Tide of Liberal Politics in Minnesota, 1971-81,''  by former state Sen.  John Watson Milton, and who served with Majority Leader Coleman in a heyday of progressive reform.   This golden decade, in which Coleman arguably had more influence than any other leader, stretched from the Minnesota Miracle and greater state responsibility for education funding and quality,  to putting teeth in civil rights legislation and expanding the rights of women and minorities and gays and lesbians, to campaign finance reform, to environmental cleanups, to progressive tax overhauls.   As former vice-president Walter F. Mondale writes in the foreword:   "In many ways, (Coleman) and Roger Moe, his successor as Senate majority leader, were more important than many governors we've had _ lasting longer, creating a revolution, and elevating the legislative branch to an equal footing with the executive...Nick Coleman was one of the brightest and most effective people in public office I've ever known.''

Both books will serve as reference works for years to come.   And they are a reminder of what's possible in our political process, and an inspiration for future stewards of our state government.

 

Dane Smith

 

Top 10 Facts About our LOW Taxes

The week when federal taxes are due predictably generates fist-shaking by the various forces for individualism and small government and, increasingly, counter-demonstrations by the "99 percent" who favor a stronger public sector and fairer economic outcomes.

But the basic fact that taxes actually are lower in the United States and in Minnesota--lower overall than in other wealthy nations and lower for the wealthy in our country than at any time in recent decades--is often missed by news media coverage of the sign-waving by both sides.

The most crisp presentation of these realities I've seen recently comes from the national group Demos, along with The American Prospect, which produced the following "Top 10 Tax Facts." Growth & Justice was a partner last year with Demos in a report on the declining security of Minnesota's middle class.

1. The government has collected less in taxes as a proportion of the economy in the past three years than it has in any three-year period since World War II, and tax rates are at historic lows.

2. One out of three multi-millionaires pays a lower percentage of their income in taxes than the vast majority of people making $60,000 a year.

3. House Budget Chairman Paul Ryan’s tax-cut proposal, which has been praised by presidential candidate Mitt Romney, would deliver benefits to people with incomes over $1 million that are 10 times greater than the benefits to those earning $40,000 or less.

4. Corporate income taxes for the past three years have hovered at just over 1 percent of GDP, lower than for any three-year period since World War II. The average for OECD countries is 3.5 percent.

5. The Bush tax cuts added $1.7 trillion to the nation’s debt between 2001 and 2008, which is more than it would cost to send 25 million kids to four-year public universities.

6. America has a revenue problem, not a spending problem. It is only because of the Bush tax cuts that our national debt is rising. If not for those cuts, our debt would be stabilized at under 60 percent of GDP.  

7. General Electric, which reported over $4 billion in US profits in 2010, paid ZERO taxes. 

8. A financial speculation tax of only 0.50 percent on financial trades could raise up to $170 billion annually.

9. Upper income households save an average of $5,500 thanks to the mortgage interest tax deduction whereas families earning between $40,000 and $75,000 save only $500.

10. Only two OECD nations collect less revenue as a percentage of GDP than the United States—Chile and Mexico.

For my money, that last fact is the most compelling. Do we want our nation and state to be more like Canada, or more like Mexico? Immigration patterns in both hemispheres suggest that people are voting with their feet for the safer and more prosperous destinations with higher taxes, more equitable communities, higher education levels, and better jobs.

And finally, making a strong case for more revenue and pubic investment, from a retired Minnesota businessmans's perspective, check out Myles Spicer's latest op-ed, calling for reasonable higher taxes to pay our debts and invest further in our community. 

 

Dane Smith

 

 

 

Jason Lewis' gaping omission in attack on nonprofits

Jason Lewis’ latest attack in his Star Tribune column on Minnesota’s nonprofit community--opening with disdain for the very concept of “shared responsibility"--is wrong in tone and content, and far removed from Minnesota sense and sensibility.

The smart-alecky dismissal of nonpartisan groups ranging from public radio to anti-smoking campaigns was mostly just unfair and cynical and predictable. But the biggest shortcoming was a glaring omission. Lewis did not say a word about the billions of tax-deductible dollars contributed nationally to fundamentalist churches, right-wing causes and conservative think tanks, including, in Minnesota, the Center of the American Experiment. All of those groups must adhere to the rules that forbid political endorsements while allowing religious expression, nonpartisan citizen engagement and communication around public policy.

It would have been fair enough for Lewis to propose reducing tax breaks for contributions to nonprofits, which actually would have the effect of raising federal and state taxes on the affluent. Some progressive tax reformers propose just that. But Lewis didn’t travel very far down that road at all. His obvious aim was to stir up anger on the far right against only those nonprofit, nonpartisan causes and foundations that don't line up with his extremely individualistic world view.

Finally, we at Growth & Justice were pleased to be associated with the other constructive Minnesota organizations listed in Lewis’ “rogues’ gallery." It was instructive to see that Lewis’ idea of roguish causes actually includes “reproductive rights, saving the planet, and world peace." (Horrors!!) But he got it half-wrong in dismissing us as “a merry band of collectivists." Growth & Justice is no more “collectivist" than the moderate Republican former office-holders, business managers and former CEOs who have supported us from our founding. We seek ways to broaden prosperity and business growth, with evidence-tested and cost-effective policies and interventions. And we have been allies with business leadership in this state on a host of policy fronts, including early childhood education, increasing transportation investment and gas tax revenue, and reducing some business taxes. But we are also almost entirely positive in our tone and content and therefore, I suppose, “merry."

Dane Smith

 

Before you buy the story about Minnesota's high taxes, read this

One of my pastimes is following coverage of tax issues across Minnesota, which means every so often, a letter to the editor like this one pops up in my email. Here's the money paragraph:

[W]hen comparing states with similar geographic and economic profiles, Minnesota extracts substantially more taxes per capita than surrounding states like Wisconsin, Iowa and South Dakota. Total state taxes per capita in 2010 were as follows: Minnesota $3,245, Wisconsin $2,527, Iowa $2,235, South Dakota $1,602 and national average $2,282.

The author uses these "facts" to support his opinion that Minnesota is a “Business Hostile” state that is driving away companies and jobs.

Since the letter writers keep misusing the Census Bureau data — let's be charitable and call them mistakes — I feel bound to keep pointing out why these comparisons are misleading. I hope you will apply these points when you see similar screeds against Minnesota's tax rankings.

1. The problems with per capita comparisons. The Census Bureau itself [PDF] cautions us not to use its  statistics on state tax revenues per capita to compare individual tax burdens. That's because their figures "reflect the taxes a state collects from activity within the state, not necessarily from the individuals within a state.”

States that rely on sales taxes (South Dakota, for example) collect revenues from every tourist who visits Wall Drug, rallies in Sturgis or visits the Black Hills.

States that benefit from severance taxes from mining and oil and gas (North Dakota, for example) collect from the companies doing the extraction, and those companies incorporate those fees in the prices they charge consumers across the country. That's why the letter writer left out North Dakota from his list. The state's per capita taxes were the highest in the region at $3934.

There's a second problem with per capita comparisons. If people make more money, they tend to pay higher taxes. Since Minnesotans make more money per capita, they also pay more.

[Note: The following paragraph has been corrected based on the comment below from MTA.] The Minnesota Taxpayers Association publishes an excellent report called How Does Minnesota Compare? [PDF] that looks at total state and local revenues per capita and as a percent of income. State and local tax rankings are 13th per capita and 14th per thousand dollars of income. However, looking at "own-source revenues" that include non-tax revenues, Minnesota ranks 12th per capita, and 23rd based on income, because of our higher average income. When federal revenues to the states are included, we rank 17th and 32nd, respectively.

2. What’s taxed differs by state. The Census Bureau again: “Different states use different approaches to taxation, and comparing only the total taxes collected by each state is not enough to understand the economic impact of those states’ taxes.”

If we've learned anything in Minnesota after the latest budget battle, we know that states can shift taxes or costs to local governments. The Census Bureau figures quoted above don't take into account local taxation.

Thus, a state like Wisconsin that has higher property taxes levied locally appears to have a lower state tax burden. But when local taxes are included, the gap closes. And when income is taken into account, Cheeseheads rank 15th highest to our 23rd.

3. State revenues are redistributed within the state. In the past year, I've seen the Census Bureau figures quoted in papers serving Park Rapids, Walker and Bemidji.

Guess what? Residents in those regions pay well below average in state income taxes, sales taxes and business taxes [PDF]. Park Rapids' Hubbard County, for example, averages less than $1,650 per capita in total state taxes (vs. $2434 on average statewide) while receiving more that $3,000 per capita in state aids and credits (vs. $2645 on average).

If taxpayers writing letters to those papers still feel they're getting a raw deal, at least now they know what the deal is.

4. Minnesota's taxes don't exactly drive away the wealthy. Before you buy the claim that Minnesota is unfriendly to high earners, look at how those neighboring states compare.

Minnesota has a higher ratio of millionaire households than any of those other states. Here are the rankings as of 2007 [PDF]:

MN 12th
WI 24th
IA 33rd
SD 47th
ND 48th

Yes, we even do better than Florida (18th) and Arizona (21st) where our wealthy snowbirds are supposed to be flocking.

Next time you see "facts" that purport to prove how terrible our tax climate is, take these points into account. And note, we haven't even touched the spending or quality and efficiency of state services.

—Charlie Quimby

Report card is in on the Tax Cut Decade: Not good for most of us

The U.S. Census Bureau's report on "Income, Poverty and Health Insurance Coverage in the United States: 2010," is out and it's worth digging in to the spreadsheets showing year-by-year change over the last 25 years for each state.

More than 500,000 Minnesotans currently are without health care, even more (560,000) are living below the official poverty level (a ridiculously paltry $22,113 for a family of four) and median income in Minnesota ($52,554 in current dollars) has dropped to its lowest level since 1999.  As usual, our rankings relative to the rest of the nation are a little better, but this should be small comfort.

It's important to remember that 1999 gave us some of the largest state income tax cuts in Minnesota's history, sold then as the surefire medicine for long-term economic growth.  Many states followed suit with their own tax cuts, and two years later we were treated to some of the largest federal income tax and capital gains tax cuts in history, also billed as a tonic for long-term job and income growth.   Instead, the next decade was marked by a dot-com bust and a bad recession, a rather weak recovery for all but high-income families, another recession capped by a banking and housing collapse, the worst economic and private-sector failure since 1929, and severe budget shortfalls and ballooning debt at the state and federal level.

Of course, the last decade, increasingly known as the "Lost Decade'' for most Americans and Minnesotans, also was the decade of 9/11, an expensive and dubious "Global War on Terror," rapid technological progress and disruption, accelerating economic globalization, and manufacturing job loss to cheap-labor competitors.  All of these factors surely are related to economic dislocation and travail, and poor and middle-income folks usually can't cope as well with rapid change as the people who are on top, highly educated, and in position to take advantage of economic changes.

But let's not forget that it was anti-government conservatives who made the cause-and-effect case, and still do, that tax cuts are not only a good thing for the economy and general prosperity, but the best and main thing to do, period.  As Ricky Ricardo would say, they have some "splainin' to do.''

Some of the best analysis and interpretation of the Census numbers can be found at the Center for Budget and Policy Priorities, which offers an interesting take on the growth of "deep poverty,'' and the Minnesota Budget Project, which notes that only Michigan had a bigger drop in median income than Minnesota since 1999.

--Dane Smith 

A statement for government redesign, goal-setting, and budgeting for outcomes

Few voices reflect Minnesota's moderate mainstream ethics more perfectly than Star Tribune editorial columnist Lori Sturdevant, and her call-to-action for government "redesigners'' in Sunday's Star Tribune Op-Ex was squarely on target.

 

And this morning Sturdevant hit the note again with a short editorial page item describing a discussion group on redesign that we at Growth & Justice have been part of for a year-and-a-half now. The nucleus of the informal ad hoc group is comprised of current and former presidents of the Citizens League, long considered a premiere civic improvement organization in the Twin Cities and Minnesota. The discussion group includes key leaders in the business community, from nonprofits and foundations and from the conservative think tank, the Center of the American Experiment. Much of the spirit and substance of the group's deliberations can be found on the pages of the Civic Caucus website.

 

Last week as the state government shutdown dragged on and a mutually unsatisfactory budget deal unfolded, our group produced a strong statement urging a commitment and offering specifics toward redesigning our governmental systems.

 

The statement is being shared with top leaders in the executive and legislative branch and will be districtuted broadly in coming days and weeks. Despair and cynicism about our political gridlock is undesrtandable but unnecessary. Recently I wrote a Capitol Report column noting that these actually are not the worst of times, and urging that we emerge from them with a commitment to redesign and invest in better government and measurable results. We can begin, for instance, by setting a 75 percent post-secondary completion goal for our young adults by the end of this decade, which is a top Growth & Justice policy objective.

 

The good news is that on many fronts conscientious Minnesotans, both inside and outside state and local government and in our state employee labor unions, are already working to improve our vital public investments. Let's encourage much more of that, and keep our minds open.

 

--Dane Smith

On taxes, let's recognize business arguments for what they are

For years, Growth & Justice has been looking for and failing to find strong evidence that Minnesota is losing jobs, wealthy residents and businesses due to corporate and personal income tax rates.

Just last month, the Council on State Taxation, an association made up largely of corporate tax attorneys, released a study [PDF] by Ernst and Young that says differences in tax rates are not a main factor influencing businesses to build or hire in one state over another — and that Minnesota ranks 10th best in terms of the competitiveness of our investment tax climate.

Despite this — and absent more than anecdotal evidence of business flight — political figures, business executives and their hired guns always come back with the same line: Higher state tax rates kill jobs and drive job creators and wealth out of Minnesota.

The latest version of this old story was offered Saturday by Ecolab CEO Doug Baker.

But you don't have to take my word for it. According to the U.S. Bureau of Labor statistics, Minnesota employment growth has lagged the U.S. rate for a decade. More than 1,200 small and medium-sized businesses left the state from 1997 to 2008.

There are a lot of factors that influence growth rates, but the 1,200 number was intriguing — because it was so specific and because the state of Minnesota has so little worried about business flight, it hasn't bothered to track such data. I checked the BLS and couldn't find the basis for his figure. I did find BLS figures for business "births" and "deaths" for those years.

During the period cited by Baker, 159,294 business establishments died in Minnesota and even more were created.

If we take Baker's word for his number, we might estimate that about 0.75% of the establishments that died actually moved out of state. And further, based on an estimate of about six jobs per establishment reflected in the BLS data, that Minnesota lost an average of eight jobs a month over the entire period because of business relocation.

Of course, no one can tie the 1,200 to taxes.

It's telling the appeal to data rests on this out-of-context number and a comparative jobs growth rate that slowed after we cut income tax rates.

However, this back and forth makes me realize that the facts don't really matter here. Businesspeople believe what they believe, and that belief will affect their decisions. In a free country they have the right and the power to make decisions that are not in the best interests of the state or its citizens.

It's not any businessperson's job to worry about non-shareholders or to lose sleep over laid-off employees. It's not their responsibility to propose balanced solutions to the budget shortfall or acknowledge the impact of a weaker state university system. It's not even, as we are constantly reminded, a wealthy person's obligation to pay more than they want to or to live in the place where they built their wealth if they are happier elsewhere.

Baker and the Minnesota Business Partnership do exert positive energy about Minnesota as a great place to do business. Some of their policy prescriptions, including early childhood education investment, dovetail with our own. We're fortunate as a state to have CEOs who dig in on big issues.

Minnesotans should not ignore CEOs and retired executives who offer answers to our budget problems. But neither should we let business arguments be the only consideration.

— Charlie Quimby

Happy 10th Anniversary, Tax Cuts! But Where's the Fruit?

Watch for some ironic hoopla this week on the 10th anniversary (June 7) of President Bush's tax cuts, the largest federal income tax rate reductions in modern history, which were preceded in Minnesota by similarly historic cuts in the state's income taxes.

The main "celebrants" are progressive policy groups who are critical of those tax cuts, and considering the economic picture of the last decade, it's obvious why the anti-tax, anti-government zealots are not lighting the candles. Chuck Collins, an heir of the Oscar Mayer fortune and co-founder of Wealth for the Common Good, makes the case in a recent op-ed that the "magical'' conservative "one-point plan'' for everything has been an abysmal failure on every front, except the enrichment of the already rich.

As outlined in a 10-point analysis published by the Economic Policy Institute, the Bush income tax cuts were overhwelmingly "expensive, ineffective and unfair.'' The United States budget went from black ink to red ink in short order, suffered two downturns and twice as many recessions as previous decades, and folks in the top 1 percent got 38 percent of the tax breaks, even as their take of total income and wealth increased dramatically. And you don't have to take the word of progressive policy groups on ranking the decade. A recent report by Investors Business Daily ranks the last decade as the worst for private-sector wage growth since the 1930s.    

Tax cuts can have a positive effect on private-sector growth and no serious liberal economists would argue that tax increases, by themselves, have zero effect on business decisions. But reasonable conservatives also know that the right kinds of taxes and government  investments in human capital, research and physical infrastructure are a foundation for long-term growth. Relatively high income taxes and smart investments in those business-building goods and services has been Minnesota's formula for success, endorsed by moderate Republicans and DFLers for decades.

At the state level, a very insightful take on the subject recently was offered by one of Minnesota's prominent local economists, Paul Anton, who in a Star Tribune op-ed suggested that marginal differences between the states in tax increases and spending cuts have little effect on jobs and economic growth. Recent articles by business columnist Eric Wieffering offer similar hard-headed wisdom on the value of public investments over tax cuts as a business stimulant.

The case for repealing those trillions (at the federal level) and billions (at the state level) of accumulated tax cuts for top incomes seems to grow daily, as federal and state budget shortfalls escalate.

- Dane Smith

 

 

A religious observance of Statehood Day, and the constitutional obligation to tax and invest for public good

Mainstream religious leaders today are hosting a vigil by the statue of populist champion and former Gov. Floyd B. Olson, in honor of Statehood Day.  On the 153rd anniversary of the North Star State, our state's most respected faith leaders will be drawing attention to the absolutely vital role of our state government in providing for  the "security, benefit and protection of the people.''   

Those words - "security, benefit and protection of the people'' - are not just some modern liberal interpretation of the role of state government.  The phrase looms large in the first sentence of Article I of our state constitution (in which there is no mention of protecting wealth and property and privilege, or keeping taxes and labor costs low.)  And those inspiring and inclusive words in Article I about the essential "Object of Government'' are being emphasized by the Joint Religious Legislative Coalition in "calling the public and our elected officials to a more just and compassionate public stewardship."

The JRLC is an alliance our state's largest denominations (Protestant, Catholic, Jewish, Islamic) and they are a member of the Invest in Minnesota coalition, which advocates for a balanced approach to the budget crisis, opposes an all-cuts strategy, and supports restoration of the higher income tax rates of a decade ago on high-income Minnesotans.

These leaders of faith are producing a strong counterpunch to the weekend's anti-tax, anti-government rally, which ironically coincided with recent news stories documenting that federal and state effective tax rates have fallen to historic lows, even as the economic condition of low- and moderate-income families decline.  Public investments in health, education and human services help ameliorate this growing inequality and public investments in human capital and physical infrastructure also are good for business in the long run.  Church leaders, who often are called upon by conservatives to apply their meager financial resources to plug the holes left by cuts in government budgets, know these realities better than most.

 

-Dane Smith 

Letters from the edge: State leaders warn of precipice ahead

Call them “Letters from the Edge," a flurry of messages last week from state government agency heads and business leaders, summarizing the view from the precipice created by an anti-government, all-cuts response to a $5 billion revenue shortfall. The view is of a shabbier and less fair Minnesota, and also not good for business in the long run.

The letters were professional in tone and yet dire and almost frantic, detailing exactly what would have to happen to bus service, nursing homes, services for disabled Minnesotans, protection for abused and neglected children, and tax compliance.

The letter from Human Services Commissioner Lucinda Jesson and Minnesota Management and Budget Commissioner James Schowalter was typical, laying out the damage that would be done to our growing elderly population from more than a billion dollars in reduced funding for Human Services, including institutionalization of many who rely on less costly interventions than nursing homes. Bottom line in Human Services, as elsewhere, is that costs for both governments and ordinary citizens actually would increase long-term from some of the proposed cuts.  A similarly stark picture was painted by Metropolitan Council Chair Susan Haigh in a letter that spelled out alternatives ranging from $7 bus fares to 40 percent cuts in transit route service.

The Minneapolis Regional Chamber of Commerce sent a letter expressing alarm about the severity of the proposed cuts and advised that "business supports investments in transit because it's good business."  Business leaders in Greater Minnesota, particularly, have been highly critical of proposed cuts to or elimination of state aids to local government.

The Department of Natural Resources, suggesting mass closures of state parks, and the Revenue Department, predicting net revenue losses from cuts in compliance and enforcement, also have responded with messages that begin to paint a picture of a cuts-only Minnesota on the brink, and looking a lot more like Pottersville (from the movie, It's a Wonderful Life) than the Bedford Falls we've enjoyed for decades.

We all know that the cuts-only budget bills are destined for veto by Gov. Mark Dayton and that the authors in the legislative majorities are not entirely serious about their proposals, some of which appear to be written to appeal to the conservative geo-political base.  And some key legislators were basically saying that the cuts are an opening round in negotiations with the governor, whose opening proposals for income tax increases are unlikely to gain final passage.

But the facts are that both Dayton's proposal and the budget strategy outlined by Independence Party gubernatorial candidate Tom Horner in last fall's election are more humane and realistic from the get-go, calling for both painful cuts and reasonable revenue increases. Those two candidates got 56 percent of the vote and that's a reflection of the Minnesota mainstream's wisdom about the value of the public sector.

The final agreement, which might not come until we are on the brink of a total government shutdown, simply must be a lot closer to the Dayton-Horner formula than the all-cuts precipice.

Dane Smith