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A different tone in this year's tax committee hearings, and a clear consensus for more and fairer revenue

I've heard infinite versions of "don't tax me''  or "taxing me or my customers more will destroy my business AND the economy'' in my decades under the dome.   And last week's opposition at a House hearing to ending sales tax exemptions on business services was typical in many respects.   Just because these fears often turn out unfounded _ our economy was performing better, in the 1990s,  when taxes were higher  _ doesn't mean these specific concerns shouldn't be heeded.   

But I don't recall ever hearing as many tax opponents acknowledge, as they made their sincere case against losing tax exemptions on their own business, that our communities do need more revenue for public investment and for dealing with demographic challenges.    Time after time I heard these business owners or their association leaders, who are also citizens,  say that they supported or understood the need for more revenue, just "please, not on me or my customers, this time.''  And when all the opponents got through testifying, alternating one-for-one with those who favored the governor's plan, there were still more testifiers left who favored the reasonable increases in Dayton's plan, and the badly needed investments on the budget side, from early childhood education to transportation to workforce training.   I didn't hear nearly as many angry diatribes against government and taxes in general as I've heard in previous years.

That consensus for more revenue comes through in the Star Tribune's Sunday poll, showing  once again that a majority favor restoring higher income tax rates on the highest income margins, while opinion is evely divided on expanding the sales tax base to more consumer services.   A clear majority opposes ending the exemptions for so-called "business-to-business'' services.

This consensus for "reasonably more'' actually is not new.   Polls show support for revenue sufficiency was strong all through the 12 years of rule by one governor whose slogan was  "give it all back'' and another whose central theme was "no new taxes,'' and  legislative majorities that took the same hard and uncompromising line in 2011-2012.   Especially after budget crises began recurring regularly in 2001 and beyond, polls consistently showed that most Minnesotans thought revenue increases ought to be at least part of the solution for budget shortfalls.  That happened also to be the position of almost all former governors in all three parties through that period.    And in almost every reputable poll I've seen, most Minnesotans think those who have been reaping almost all the benefits of increased productivity in recent years, and who have been paying a smaller percentage of their big increases  in state-local taxes, ought to contribute reasonably more.

 

Dane Smith   

 

 

Border sales tax impacts: Do we believe our lying eyes?

Back in 2007 when Growth & Justice was presenting its Invest for Real Prosperity tax proposals to the legislature, I recall a member waxing nostalgically about his parents hauling the family across the North Dakota border to buy untaxed clothing in Minnesota.

The point of his anecdote was that if Minnesota lowered its sales tax and broadened its tax base—as economists recommend—this lucrative cross-border school clothing traffic would dry up, with terrible consequences for Minnesota's border city retailers.

We're hearing a version of the same tale, now that Governor Dayton's tax reform plan has finally taken the advice of both Growth & Justice and Governor Pawlenty's 2009 tax reform commission to lower the tax rate and extend the sales tax base to a broader range of consumer products and consumer services.

This week, Rep. Pat Garofalo objected on TPT's Almanac: At the Capitol. He reported that a North Dakota Democrat was proposing eliminating the state's tax on clothing as a form of tax relief.  

"Retail businesses in border communities like Moorhead will be destroyed," Garofalo said, attracting blogger Dave Mindeman's skeptical response:

Fact: North Dakota sales tax is currently 5.0%. Fargo, ND which is the booming ND metropolis across the river from Moorhead adds a 2% city tax. So here [are] the facts. Under Dayton's tax proposal, Moorhead (which adds no city tax) would be 5.5%. Fargo would charge 7.0% Clothing may be exempt in the future, but Moorhead will still have clothing under $100 exempt as well.

Judging from comments left on the post and on Twitter, the border-crossing mythology is too well-entrenched to be swept away by simple math.

But let's suppose North Dakota finally drops its state clothing tax just when the gap with Minnesota is closing.

Then what? Will Minnesota border towns really suffer? Were North Dakota retailers in the thriving cities of Fargo and Grand Forks suffering in silence all these years?

As the Minnesota legislator said in that 2007 hearing, should I believe you or my lying eyes?

Certainly one person's personal experience can be more persuasive than actual scientific studies—especially when it confirms his biases—but let's push ahead anyway.

As you can imagine, economic theory predicts that consumers will seek to lower the costs of goods where a sufficient tax differential exists along with relative ease of acquiring the products from the alternative source.

We think we see this principle at work with internet sales that make it easy to circumvent state sales taxes—but application to the border situation is clouded because the internet sales are often deeply discounted as well.

Looking at the literature studying economic activity in response to sales tax rates, I found research that supports the following points: 

Response to differences in the sales tax depends on proximity of border communities. In other words, the farther you have to drive to avoid the tax, the less likely you are to do so. 

How much does distance matter? A 2010 Utah study of local option sales taxes PDF* that investigated distance as a variable found increasing the tax rate lowers taxable sales (all else held equal) when there is a jurisdiction with a lower tax rate within 5 km, or about three miles. The effect disappears altogether within about 40 miles. This is to be expected for low-cost goods and everyday commodities. But it also appears to hold for expensive major purchases such as new or used automobiles.

Occasional forays to other markets are probably more memorable than routine local trips to buy the same goods, causing people to overestimate the total economic impact of their trip to buy tax-free products.

 

Clothing purchases appear less sensitive to tax-influenced decisions. When different types of goods are taken into account, several studies found only modest evidence that consumers would alter their consumption or search for lower tax rates on food, clothing and general consumer goods.

Small tax differentials have small effects. Another study based on a natural experiment compared a local option sales tax increase that resulted in a one-half percent difference between neighboring cities. The town with the higher tax rate showed a modest retail sales decline, but drop did not affect the number of businesses, and the reduced sales revenue for the town was more than offset by the increase in tax revenue.

In cases like cigarette taxes, where cross-border differences are large and the product is regularly consumed, we see clear evidence of cross-border activity.

Bottom line, there's some support for the economic theory or it wouldn't be a theory for long, but people tend over-estimate the larger effect of their own behavior and observations.

Dayton's proposal is a target precisely because it takes on the difficult and sometimes contradictory outcomes of tax reform.

Bruce Nustad, president of the Minnesota Retailers Association, for example, doesn't like the clothing tax: “We like the idea of lowering the overall sales tax rate. The tradeoffs, though, are a little difficult for us.”

Which is maybe why there have been so few serious attempts at reform, despite the theories.

—Charlie Quimby

* The state of Utah has wide diversity in local option sales taxes, enabling researchers to study differences between adjacent communities without distorting effects by comparing different states.

Among the five counties that form the urban core in Utah and represent 70 percent of the state’s population, every major city in each of the counties has a different tax rate. In several rural counties, there are no differences in the tax rates within the counties, but in twenty-six of the twenty-nine counties in Utah, 30 percent of the local taxing jurisdictions have tax rate different from each other.

A week for reflection and commitment to justice and broader prosperity (and yes, taxes and public investments help do that)

We have this week a confluence of events that ought to lift our hopes and sharpen our resolve to reduce racial and economic inequality in our state and nation,  and to build a more inclusive prosperity.

The hope comes from the momentous coincidence today of Martin Luther King's official birthday observance and a re-inauguration, after a convincing re-election,  of the first African-American president of the United States.    Michelle Obama, a descendant of slaves, is the First Lady of a White House that once was occupied by white slave-holders, and actually built by slaves.   This is a remarkable country, capable of extraordinary self-correction, powerful and wealthy because it is governed by its own people, and stronger yet when ALL its people are empowered.  We can  expect President Obama will build on the theme in his inauguration speech that we all do better when we ALL do better.    While the Obamas have succeeded spectacularly, far too many people of color are still left behind, and economic disparities continue to grow between top incomes and families of all races in the middle-income brackets.

In Minnesota, attention swivels on Tuesday to the release of both a two-year state budget proposal and a major tax system overhual from Gov. Mark Dayton.    Minnesota's prosperity rests on an innovative business leadership, to be sure, but also on a  foundation of public investment, in the form of high-quality public education,  physical public works infrastructure, public health and natural resource protection.   We need to invest more and more effectively in those things, including early childhood education and post-secondary training,  and Gov. Dayton can be expected to emphasize that this broader prosperity and better government is the end we seek, while taxes merely are one of the  means.   Minnesotans understand these fundamentals and have long been distinguished by a commitment to public good, as well as private gain.   Let's try to keep this in our heads as we all get ready to argue over the details.

Dane Smith

 

 

Come to MinneMinds Launch Today

We urge all who can to attend the public launch today of MinneMinds (www.minneminds.com), an ambitious effort to increase public funding and access for high-quality early care and education. An event and press conference begins at 3:30 in the rotunda of the state capitol. On the other end of the cradle-to-career pipeline, our latest blogpost (www.growthandjustice.org) praises a new "community paramedic'' program at Inver Hills Community College.

via growthandjustice.typepad.com

An innovative "two-fer" in health care and higher-ed: Community paramedic program at Inver Hills

The St. Paul Pioneer Press last week highlighted on both its news and editorial pages a splendid innovation in postsecondary training and health care, now being offered by Inver Hills Community College. The new wrinkle is training and certification of "community paramedics," who will provide at-home care for less severe medical needs, filling a gap between regularly scheduled in-home nursing and those expensive trips to emergency rooms by conventional paramedics and emergency responders. Community paramedics would serve only those who don't qualify for home health care and the service could be adapted to regional and local needs. "In rural Minnesota, [community paramedics] may provide vaccinations when the demand for ambulance service is slow. In cities like St. Paul, they could check on patients who recently had surgery or provide routine health screenings in low-income communities," the Pioneer Press reported. An editorial endorsement of this creative response described it as "a homegrown example of the search for productivity gains and efficiencies that will be essential as governments confront growing health care costs," and as a promising effort to "rethink and redesign" both health care and postsecondary education.

--Dane Smith

 

How we can help the poor help themselves, and our economy, Selvaggio-style

Joe Selvaggio is a celebrated former priest who has spent nearly half a century helping poor folks become more productive and less poor,  lately through the MicroGrants program and before that, Project for Pride in Living. 

He also recently authored one of the most inspiring and articulate cases I've ever seen for investing in the human potential of our large and growing underclass.   His powerful essay appeared in the Star Tribune on Sunday Nov. 18, and was headlined "Think of the poor as part of the solution: They're a source of economic growth. That's why we can afford to help them.''

Selvaggio is the soul of charity but he's not a naive do-gooder who sees poor folks as purely victims.  And he argues that they ultimately are responsible for grabbing on and pulling up on the hands that are  offered from public and non-profit workforce training providers.  And he also concludes that governments need to invest more in broad-based self-sufficiency and productivity efforts instead of just focusing on direct aid and entitlements.    Citing the success of the Harlem Children's Zone and other non-profits such as Twin Cities Rise! and Summit Academy OIC, Selvaggio notes:  

"Entitlements seem to be anathema to the right, left and center.  But job-training programs are politically acceptable to left, right and center.   The private nonprofit sector has proven that they work, but philanthropy can't do it alone.  Now it's time for government to put muscle behind them...Change the paradigm and think of the poor as locked in a cocoon, ready to develop into a productive creator of wealth.''

Our policy-makers in Minnesota need to find what's working best in in preparing and moving chronically unemployed or under-employed folks in to the decent jobs that are being created in our new economy and right in their communities,  whether it's health-care, transportation, financial industries, or construction.   Growth & Justice is beginning a project that will illuminate those models.   And our legislators and other elected officials must be ready and willing to invest in them.   Because this really is an investment that pays off for everybody.

 

Dane Smith   

 

 

A seasoned conservative briliantly explains the larger historic sweep

Some of the most interesting election aftermath analysis is coming from seasoned conservatives with a broader view of the sweep of history, and nobody since Nov. 6 has laid this out with more panoramic vision than David Frum. In this CNN excerpt from his larger explanation of why Romney lost, Frum dismantles the notion perpetrated by many on Fox News, and Mitt Romney himself, that America is now lost to entitlement "takers."

"America is not a society divided between 'makers'' and 'takers.' Instead, almost all of us proceed through a life cycle where we sometimes make and sometimes take, as we pass from schooling to employment to retirement. The line between 'making' and 'taking' is not a racial line. The biggest government program we have, Medicare, benefits a population that is 85% white...The United States did not vote for socialism. It could not do so, because neither party offers socialism. Both parties champion a free enterprise economy cushioned by a certain amount of social insurance. The Democrats (mostly) want more social insurance; the Republicans want less. National politics is a contest to move the line of scrimmage, in a game where there's no such thing as a forward pass, only a straight charge ahead at the defensive line [and] whatever you think of the Obama record, it's worth keeping in mind that by any measure, free enterprise has been winning the game for a long, long time to this point."

Frum then describes in some detail 50 years of movement away from government regulation and high marginal federal income tax rates, which happened under Democrats and Republicans. He notes that Marxism was still a live intellectual force in the early 1960s and is now in complete retreat and disrespute internationally. Frum doesen't get into the most important underlying fact of all: the alleged "makers" in the top 1 percent (or 5 percent or 10 percent) have "taken" almost all the growth in the economy over the last decade and now have a greater share of income and wealth than at any time since the Great Depression.

Finally, Frum harshly chastises the racial animosity implied in some post-election commentary and his points remind me of the more embracing brand of Republican philosophy that prevailed in Minnesota from our early statehood under Abraham Lincoln (can't wait to see the movie), through Govs. John S. Pillsbury, Harold Stassen and  Arne Carlson.

"To assume from the start that only certain ethnicities will contribute, and that others aspire only to grab, is not only ugly prejudice; it is also self-destructive delusion. People of all backgrounds want to create, save and contribute to society. A party of the center-right should make them all feel at home, regardless of how they pronounce their last name, the complexion of their skin or the way in which they express love and build family...We need more sensible conservatives. As for the feeble conservatives, they should take a couple of aspirin and then stay quietly indoors until the temper has subsided and they are ready to say and do something useful again."

Amen.

--Dane Smith

 

 

Voters want the reasonable middle ground

Elections can be a surprise, and this latest was for me, on both the national and state level, a very pleasant surprise. I've been weary of the "devil take the hindmost" style of political brinkmanship that seems to have become commonplace in Washington and at the State Capitol. I don't care who's to blame, or even that everyone or no one is to blame. I just want a group of legislators willing and able to identify the plights of the people -- all the people -- and addressing them with creative, nonpartisan solutions that are effective and cost efficient.

One thing our recent elections show is that the voting public, as an electorate, is only several degrees on either side of middle ground. And, our votes will swing in favor of one party or the other based on how far the party in power has strayed from the middle. We are not against government, but only ineffective, inefficient government that wastes tax dollars. We are not against regulation, but want regulations that are patently fair, reasonable, non-discriminatory and not arbitrary. And, we are not at all against taxes, but only taxes that burden us without adequate demonstration that our tax dollars are being spent efficiently for the good of all.

The clear message to politicians everywhere is that they don't stray too far from the middle. The people want government and expenditures focused on things that matter to the mainstream, and that both improve lives and make it easier to live, work and play in their own communities. Our newly elected political leaders should be thinking long and hard about that, and less or not at all about sticking it to the other political parties for paritsan gain.

--David F. Fisher

(Note: David F. Fisher is a new member of the Growth & Justice Board of Directors, and is Executive Director of the Corporate Institute at the University of Minnesota Law School. He was commissioner of the Minnesota Department of Administration under Independence Party Gov. Jesse Ventura.)

Stunning victory for voting rights and civil rights, and historic perspective on partisan control

Two big obvious takeaways from Nov. 6.

By larger margins than anyone dreamed possible, Minnesotans rejected proposed amendments to the state constitution that would have done damage to voting rights, civil rights and human rights in Minnesota. It truly was a historic day, perhaps a turning point, as Minnesota moves forward to re-establish its reputation as a progressive and tolerant state, one that aims to realize the full potential of all its people.

And as a political reporter whose job it was to offer analysis after elections, I'm wondering whether someone will assess what may be a historic level of partisan control. I've noticed a couple media reports noting that the Legislature and governor's office are in DFL hands for the first time since 1990. But with control now of both U.S. Senate seats (Republicans had both U.S. Senate seats through the 1980s), both chambers in the Legislature, all statewide constitutional offices, and 5 of 8 congressional seats, this may be the most landscape controlled by the DFL since the late 1970s. Hubris and arrogance about a mandate are not advised. In 1978, Republicans swept back in to power with the Minnesota Massacre, in a harbinger of the "Reagan Revolution" nationally two years later.

--Dane Smith

 

"Minnesota's Miracle" can inform a new generation

Policy enthusiasts and history buffs will enjoy "Minnesota's Miracle: Learning from the Government That Worked." It's a gem of a book on 1970s legislative policy-making, and Minnesota's golden age of bipartisan problem-solving, progressive reform, public investment and innovation. The writing, by Tom Berg, a former legislator and a strong Minnesota community leader on many fronts since then, is both careful and lively, sprinkled with delightful anecdotes such as the triumph of pioneering women legislators in gaining entry and membership in the once all-male St. Paul Athletic Club. For my money, the heart of the book is the chapter "Breakout Session," between pages 79 and 112, which contains an inspiring summary of lasting reform legislation that protected the environment, expanded access to education, and improved housing and metropolitan governance. Younger citizens in particular need to know this history, to know what is possible and to keep hope alive for constructive resolution of the demographic and economic challenges we face 40 years later. The book launch and celebration is set for 4 p.m. Tuesday evening at the Cowles Auditorium and the Hubert H. Humphrey Center.

--Dane Smith