Growth & Justice Blog

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   

 

 

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

 

 

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   

 

 

Wonkish Ryan's budget specifics take center stage

Congressman Paul Ryan is routinely described as a "wonk." And all of us policy enthusiasts have to like the new focus on substance--budgets and taxes and who gets how much--that's likely to occur with the naming of a fellow wonk as Mitt Romney's running mate.

Conservative and liberal commentators also agree that the choice of Ryan signals a harder turn by Romney toward a more specific anti-tax, anti-government policy agenda. It reflects an even more pronounced valuing of private interests over public interests on the GOP side, and perhaps the strongest attack since before the 1930s on our federal government's fundamental role in providing economic security for all Americans.

The best and most comprehensive critique of Ryanism, and the spectacular claim to be able to reduce the federal deficit by cutting taxes, can be found at the Center on Budget and Policy Priorities (CBPP) blog post headlined "Everything You Need to Know About Chairman Ryan's Budget.''

Here's how CBPP President Robert Greenstein summarized the Ryan blueprint: "It would likely produce the largest redistribution of income from the bottom to the top in modern U.S. history and likely increase poverty and inequality more than any other budget in recent times (and possibly in the nation’s history)."

The ramifications for Minnesota of the Ryan budget were teased out of the CBPP studies late last week by the Minnesota Budget Project (MBP). The MBP reported that "Minnesota would lose an estimated $420 million in federal funding for education, law enforcement, clean water, and other state and local priorities in 2014 under the House-passed Ryan budget...The total impact from 2013 to 2021 would be a loss of $3.8 billion in federal funding to Minnesota and local communities."

Meanwhile, on the libertarian end of the spectrum, the Cato Institute is much more bullish on Ryan's budget, but Cato also faults him for inconsistency and for not taking a similar whack at the huge military-industrial complex that taxpayers support through military spending.

It's common knowledge that Ayn Rand, the novelist and amateur philosopher who worshipped capitalists as godlike Atlases to whom everything was owed, has had strong influence on Rep. Ryan. The New Yorker reminds us that her novel, Atlas Shrugged, once was required reading for his staff. But Ryan has since attempted to disavow Rand, in large part because of her militant atheism and utter contempt for religion and the altruistic values of Ryan's Catholic faith. The American Values Network offers an intriguing challenge to Christians to choose between Ayn Rand and Jesus Christ.

--Dane Smith

 

 

Itasca Project elevates higher ed as key to growth

Every serious student of public policy In Minnesota needs to see at least the executive summary of an important new study out this week by the highly respected Itasca Project. The IP is a group of corporate and community leaders that has led the way in the past with consensus-seeking studies on transportation investment, early childhood education needs, and the education achievement gap. The Itasca Project's latest report elevates higher education improvement and attainment as the key to sustained economic growth in Minnesota. Among the findings and recommendations in Higher Education Partnerships for Prosperity:

• Future growth will require "deeper and more relevant skills from the workforce and increased innovation from researchers, entrepreneurs and businesses." By 2018, 70 percent of Minnesota jobs will require postsecondary education.
• Pressure on state budgets during the decade from 2000 to 2010 drove a 35% reduction in public funding per student in Minnesota, which drove up tuition and raised barriers to completion. (My editorial comment: these cuts were driven by an anti-government, anti-tax pledge that was unconscionable, and cutting higher education was dumber than eating seed corn).
• Minnesota strategically needs to: align academic offerings with workforce needs, foster an "ecosystem of research and innovation," form "new collaborations" to "optimize system-wide intellectual assets and efficiency," and (duh, editorial comment again) "graduate more students."

At Growth & Justice, we've been urging for several years now that policymakers set a clear goal for the state for postsecondary completion of 75 percent for all young adults by 2020. Put another way, the best route to sustained prosperity in Minnesota is to ensure that at least three out of four young adults have some sort of post high-school certificate or credential that enables them to enjoy a more productive career and realize their fuller human potential. And this imperative is particularly important for our kids of color, who currently are lagging far behind in academic achievement and attainment. Developing their potential is our best opportunity for business growth and productivity.

--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 

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

"More Bang for Your Buck" should be required reading for Minnesota policy types

Peter Heegaard is a former executive for a financial firm, and he's well-known in Minnesota public policy circles as a leader with a strong social conscience, a great combination of heart and  passion for progressive change and hard-headed analytical sense on dollars and cents.  His new book, "More Bang for Your Buck,'' should be required reading for policy wonks in Minnesota who want to be on the cutting edge of what works in human services, and more important, how to tell.  Two subtitles on the cover summarize the contents: "Good News for Taxpayers, Public Officials, Philanthropists & Non-profit Managers,'' and "How Cost/Benefit Analysis Can More Effectively Promote the Public Good."

The book brings state-of-the-art thinking and many actual case-by-case calculations to the emerging efforts to show the return from public and nonprofit invesments in human capital, primarily education, workforce preparation and other human services.  Heegaard's book explains with lively detail how leading Minnesota nonprofit groups, such as Admission Possible and Twin Cities Rise, and others, many of which benefit from taxpayer support, have been able to document with cost-benefit analysis that their work with human capital is in fact returning an investment to the economy and to society.

I like this passage in the introduction: "Enough examples of high payoff civic investments now exist to make a very strong case that the art of giving or philanthropic investing, including government budget decision-making, can create new solutions to age-old problems, while at the same time improving the returns on our taxable income.''  The book is available at Nodin Press.

--Dane Smith 

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