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   

 

 

Small businesses aren't built alone—that's how they die

In an op/ed appearing in several Minnesota newspapers, State Representatives Deb Kiel and Dan Fabian call out Minnesota Department of Revenue Commissioner Myron Frans for saying something to the effect that a Thief River Falls entrepreneur did not build his business alone.

It’s evident from the commissioner’s response to the business owner that there are two vastly different ideas as to how we should help our economy grow and add jobs to our area.

The Dayton administration proposes big government, increased taxes and long-term dependency.

We maintain that local businesses — the backbone of our economy — will help rebuild our economy with a more favorable tax code that makes it easier for business owners to operate and expand, decreased regulations and a government that gets out of the way.

The representatives work themselves into a lather over the commissioner's comment so they can segue to a popular and evergreen theme: Minnesota is an unwelcoming place for small business, with taxes and regulation that stifle entrepreneurs and drive companies into the low-tax arms of South Dakota.

But where's the proof? One business owner grumpy about his taxes does not make a case. And while the gentleman's company wouldn't exist without his original vision, hard work and risk-taking to get it off the ground, he could not have built it alone.

No one really builds a business without the help of other people or the support of the community in which it operates.

No matter how hard you work, no matter how smart you are, no matter what the income tax rate is, your business's potential is extremely limited without the talents, ideas, contacts and labor of other people. And while the importance of location varies with the type of business, no owner can function without the public infrastructure, laws and court systems that support the company.

As the founder of a business that has lasted for 24 years, some of them without me since I turned it over to employees, I learned how hard it is to find, recruit and retain good employees, suppliers and customers—and how important place is, in educating workers, giving them relevant experience and providing an environment where they want to live, raise families and enjoy a well-rounded quality of life.

Without employees, you're unlikely to ever have to worry about paying the top tax rate.

However, it's also true that a majority of small businesses are one-person enterprises, so in that sense, there are a lot of business people whose businesses are the product of their work alone.

Starting a business is tough, but it's even harder to build one. Look at these facts:

• The average American small business employed roughly 2.5 to 5 people, depending on the industry. PDF
• 90% of companies with workers on the payroll employed fewer than 20 people in 2007, when the economy was in better shape.
• Only about 3% of small business owners in the U.S. will earn enough to be subject to top-tier federal tax rates; 57% of small businesses have revenues of less than $25,000 a year.
• About half of small businesses either fail or close within five years; by 10 years only about 35% are still around.

Most of these businesses fail to grow because of inexperience, insufficient capital, poor management practices and competition, not regulation and taxes. And here's one more reason why businesses don't grow:

Most small employers are restaurateurs, skilled professionals or craftsmen (doctors, plumbers), professional and general service providers (clergy, travel agents, beauticians), and independent retailers. These aren’t sectors of the economy where product costs drop a lot as the firm grows, so most of these companies are going to remain small. And according to Hurst and Pugsley’s survey evidence, the majority of small business owners say that’s precisely their intent—they didn’t start a business for the money but for the flexibility and freedom. Most have no plans to grow.

In other words, the greatest limitation on the growth of small businesses is the individuals themselves.

I can honestly say that government never got in the way of my business, nor did it directly intervene to make us successful. It simply contributed to the conditions that allowed us to succeed, and when we did, it collected more taxes.

But issues vary by industry. If there's concrete evidence of real problems, Kiel and Fabian should cite them and propose solutions. Instead, they allege a Dayton administration hostility toward business in general, while claiming credit for Minnesota job gains, lower than average unemployment and higher tax revenues that occurred under the governor's watch.

"Getting government out of the way" is a political slogan without an actual track record. Constant carping about Minnesota's tax rankings and business climate hasn't helped a single business, and it's probably scared away a few.

Going back to 2007, we've repeatedy looked for evidence of job migration because of taxes and dug into claims about the superiority of other states as business havens. While we won't deny that businesses occasionally relocate or expand in other states, we've found no credible study that shows taxes and regulation are a significant factor in hampering Minnesota's economic growth.

—Charlie Quimby

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

Moving from Inequality to Equity in our Region

Among other Met Council members at a roundtable discussion last week at the Rondo Community Outreach Library in St. Paul, Roxanne Smith representing Champlin said the “superior growth model” and the “top priority” for the Met Council is to close the unemployment gap between African Americans and whites, currently one of the worst in the nation. This was reaffirmed earlier this year when the Met Council’s Corridors of Opportunity and HIRE Minnesota pushed MNDOT to raise their workforce inclusion goal for people of color to 32 percent up from the previous goal of 11 percent.

The devastating consequences of the double-dip recession and the foreclosure crisis have disproportionately impacted the core cities and older suburbs throughout the Twin Cities region. The inclusion of these disenfranchised communities in the planning of economic, transit and housing development will ultimately be, as Russ Adams, director of the Alliance for Metropolitan Stability described, a “down-payment” on the “untapped human potential” to secure a vibrant, competitive and prosperous economy.

We couldn’t agree more. Growth & Justice has consistently advocated for smart investments in Minnesota to create sustainable public infrastructure and a prosperous economy. Our emphasis is on equity.

To hear more about economic disparities and recommendations for equitable solutions, please join us on Tuesday night with author Chuck Collins and Headwaters Foundation for Justice, On the Commons and Wealth for the Common Good as we address many of the central questions of our time: Who are the 99 percent? How extensive and systemic is inequality in different areas of society? How is inequality changing in our world? Do we dare be hopeful about changing it?

Tuesday, June 26 at 7 p.m.
This event is free and open to the public.  

Open Book Center - Target Performance Hall
1011 Washington Avenue South, Minneapolis
Registration is appreciated; click here to RSVP

--Colin O'Keefe

Top priority for transitway development should be employers and jobs

You are a policymaker and you have a tough choice between two big development proposals for the same site on a key light rail line or transitway. All other things being equal, which do you choose: a major employer or a large housing complex?

If overall accessibility improvement and employer access to labor is the goal, take the employer, says new research presented this week at the 23rd Annual Transportation Research Conference in St. Paul this week.

The research report by University of Minnesota Humphrey School Assistant Professor Yingling Fan was complex and aimed at planning professionals. But the bottom-line key finding was straightforward: "Locating new jobs near transitways produces larger increases in accessibility than locating new housing near transitways.'' Getting these fundamentals right are important because by 2030 we likely will have an integrated network of 14 transitways up and running in the Twin Cities, ranging from light rail to commuter rail to express bus lines. Few public investments are more important for business growth than transporation infractructure.

Fan's research was sponsored by the McKnight Foundation, the Jay & Rose Phillips Family Foundation and the Surdna Foundation. Abstracts from the conference provide rich state-of-the-art thinking on a wide array of transportation investment issues.

Dane Smith 

St. Paul resident and son inspecting Central Corridor construction in downtown St. Paul (Metropolitan Council photo)

Channel that "99 percenter" energy by linking to the SKILLS@WORK movement

Protesting the increasingly unfair advantage of the top 1 percent underlies much of the new energy around politics and policy these days.  And that can be healthy, because the economic decline of the middle class and the working class is a major challenge of our times.

But it's important to stay active and informed on a more constructive front as mainstream Minnesotans try to channel that anger and enthusiasm in 2012.

And one of the best new positive things going in Minnesota, coinciding with the Governor's Job Summit this fall, is a campaign called SKILLS@WORK, a joint project led by the United Way of the Greater Twin Cities, and the Governor's Workforce Development Council.

Key facts from the SKILLS@WORK website that many have already heard, but must be kept top-of-mind:

• In 2018, 70 percent of Minnesota jobs will require education beyond high school, yet only 40 percent of working-age adults in Minnesota hold a postsecondary degree.  (We at Growth & Justice have been urging state leaders to start by setting a goal of 75 percent post-secondary attainment by 2020.  See our op-ed urging an attainment crusade earlier this month.)
• Nearly two million working-age Minnesotans lack a credential beyond a high school diploma. 
• Educational attainment levels are expected to decline in coming years – an unprecedented trend.

The alarming facts surrounding an educational equity gap for kids of color, which is grossly unfair to our fastest growing demographic groups, is a major factor for that last bullet.  One of the better comprehensive formulas for improving that picture is contained in the document "All Hands on Deck," which was produced by the Governor's Workforce Development Council under the previous administration and has strong input from the corporate and business world.  The GWDC is one of the most farsighted state agencies you've maybe never heard of.  Plug in to it.

--Dane Smith

 

Minneapolis Promise makes progress in getting kids on early college track

Research shows that getting kids and their parents in a post-secondary mindset as early as possible -- creating not just hope but an expectation for college attainment -- makes a big difference in whether they get credentials.

Minneapolis Mayor R.T. Rybak and his top economic development official, Mike Christenson, without a lot of fanfare, have been working this angle for years.  Every year in the fall Mayor Rybak addresses every 9th grader in the city with a message and specific programmatic inducements that encourage them to compete for summer jobs and scholarships for college, or that put them on the post-secondary track.

Christenson, director of the Minneapolis Department of Community Planning & Economic Development, and a Growth & Justice Policy Fellow, summarizes the success of those efforts in a recent MinnPost Community Voice column, key parts of which we reprint here: 

 

 

"Let's begin with the story of Alex Glaze. Alex and his twin sister grew up in poverty and were removed from their mother's home early in life. Alex quickly learned that if he needed a ride to school or school supplies, he was on his own. He began working in junior high to take care of household needs. At 18, Alex and his sister were told to leave their father's home for good.

After graduating from Southwest High School, Alex worked in the Minneapolis mayor's office as a STEP-UP intern. This summer, he joined nearly 2,000 other STEP-UP interns and dozens of employers to celebrate their summer accomplishments. For many interns, it was their first work experience. Like so many of us, they described their summer jobs as their first big break...

....The summer job is one of three parts of the Minneapolis Promise offered through Achieve Minneapolis. Mayor Rybak visits assemblies of ninth-graders in each Minneapolis public high school every fall. There, he lays out a compelling alternative to street life. Every Minneapolis youth may compete for one of 2,000 summer jobs, must complete a college and career map called "My Life Plan," and can apply for thousands of scholarships through Minneapolis Community & Technical College, Augsburg College, the University of Minnesota, Admission Possible, the Children's Defense Fund, the McGuire and Wallin and Page Foundations and many more programs.

State and city leaders from all sectors worry about the overwhelming challenges of the achievement gap in Minnesota. Populations of color trail others in measures of educational success at a nation-leading rate. We're a proud state, and national leader in so many categories, but this is a leadership position we need to vacate. After eight years, the Minneapolis Promise offers hope. A combination of summer jobs, career and college plans, and scholarships adds up to more than the sum of its parts...[and]...if the Minneapolis Promise continues to grow, the achievement gap will shrink. Here are the facts:

•    Over 82 percent of the STEP-UP and city summer interns are persons of color.
•    More than 900 students have attended MCTC under the Power of You program, and the number of Minneapolis high-school graduates has more than doubled at MCTC in five years.
•    The University of Minnesota has admitted 166 STEP-UP interns since 2006. 
•    ACT testing and college participation rates from the Minneapolis high schools continue to grow.

...Minnesota's future work-force challenge will be to inspire populations not likely to attend college to hear this promise. In Minneapolis, we have found that summer jobs join with college supports to boost college participation. Let's hope that miracle can go to work, first through a summer job, for all Minnesota youth like Alex. And let's hope that the business community, which has kept this promise in Minneapolis, will inspire others as well. One last thing: Alex Glaze is in the freshman class at Stanford this fall." (Bold italics added).

The punchline, about an impoverished Minneapolis child, benefiting from broad community support, smart taxpayer investments combined with private-sector partnerships, entering prestigious Stanford University, tells it all.

--Dane Smith

"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