Growth & Justice Blog

Author of "So Rich, So Poor'' brings truths about poverty to Minnesota

I have the great privilege of introducing author Peter Edelman Tuesday evening to talk about his powerful new book, "So Rich, So Poor: Why It's So Hard to End Poverty in America." Edelman is a Georgetown University law professor who has served at the pinnacles of power, as an adviser to U.S. Sen. Robert Kennedy and in President Bill Clinton's administration. He may be most famous for resigning from the Clinton administration to protest the deep cuts to benefits and eligibility limits in Clinton's welfare "reform'' package in the mid 1990s. His book is a primer on the disgraceful prevalence of poverty in the world's wealthiest and most powerful nation. It's also one of the most misunderstood issues in our body politic. The compelling fact that Edelman drove home in a recent New York Times editorial is this: the failure of the private sector to adequately reward people who work hard for their living is by far the biggest driver of poverty and low-income status. Most poor people work and a whopping 104 million people -- a third of our population -- have annual incomes below twice the poverty line, or less than $38,000 for a family of three. A fourth of all jobs pay below the poverty line for a family of four, or less than $23,000 annually. As the world's only wealthy democracy without universal health care, and with some of the chintziest economic security benefits in the western world, our working poor and our disabled poor are signficantly worse off than the poor in all the so-called developed nations. Edelman will talk about his book at 7 p.m. on Tuesday Oct. 2 at Common Good Books, at the corner of Grand and Snelling in St. Paul.

--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

Know exactly where you rank among the 99 Percent (you may be surprised)

One of the best things coming out of the 99 Percent movement is an increasing public awareness of exactly who gets how much in our increasingly unequal nation.  A number of interactive calculators have popped up on the internet and I'd recommend the Wall Street Journal's "What Percent Are You?'' site for a quick calculation of your household's approximate position on our extremely unequal income ladder.  The calculator advises that an annual salary above $506,000 puts you in the top 1%, while you need to make less than $2,500 a year to be in the bottom 1%.

Ignorance and misinformation about exactly where you are in the economic hierarchy can lead to poor decision-making in voting and policy-making.  I've seen studies that show many Americans on the bottom half of the scale mistakenly think they are more affluent than they are, and are even more wrong about their likelihood to ever make it to the top echelons.  As a result, they may actually oppose increasing tax rates on the top tier because they imagine they are in it or close to it, or destined for it.  Similarly, I've seen studies that show many households at the upper echelons, perhaps because most of the people they hang out with also have second homes in Florida, don't think they are rich.  A recent New York Times story headlined "Everyone is Middle Class, Right" summarizes a study that documents these erroneous impressions.  Note the bar graphs that show how wrong people are about their status, on both the top half and bottom half.

Maybe if more wealthy folks knew exactly how many Americans ranked below them, they wouldn't be so hostile to paying more for the social contract.  And if more voters knew how far behind the top tier they are, the less they would empathize with that advantage.  Knowledge, as they say, is power.

One last point.  The Wall Street Journal's What Percent Are You? calculator is part of its regular feature, The Wealth Report, a blog by senior writer Robert Frank.  Frank's blogs are even-handed, often counter-intuitive and progressively edgy and funny, without being strident.

--Dane Smith

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

 

 

Watch for tax expenditures as the solution in June, despite last week's chain yanking

Two months in to the legislative session, some of the more moderate and independent conservatives were daring to suggest reasonable revenue options, such as eliminating tax breaks and deductions.  But then somebody yanked the chain and gave the order to get back in line.  And that helps explain the letter to Gov. Dayton late last week, signed by all 37 senators in the majority caucus, affirming that they are still opposed to raising taxes to balance the budget.

But let's consider the door ajar, and certainly not locked and bolted, especially on the option of removing "tax expenditures" (basically exemptions, credits and loopholes that favor certain folks or activities within a broader tax type).  The rationale is well established for going after tax expenditures as not only a way to raise revenue, but also as a redesign overhaul that will bring more progressivity and stability to our state's increasingly complex system.

Sound advice on how to think about tax expenditures and ideas for evaluating them and even "sunsetting'' some of them are contained in a report submitted to the Department of Revenue entitled "Tax Expenditure Review Report: Bringing Tax Expenditures Into the Budget Process.'' Among those on the panel that produced the report are our Growth & Justice Policy Fellow, Marsha Blumenthal, professor emerita at the University of St. Thomas, and John Spry, also an economics professor at the University of St. Thomas, whose expertise is often sought by conservatives.  Former Minnesota Finance Commissioner Jay Kiedrowski and Judy Temple, both professors at the University of Minnesota, and each of whom have served on advisory panels for Growth & Justice, are co-signers of the report.

The report calls for establishing a Tax Expenditure Commission to oversee an evaluation process and to define a clear and measurable purpose for each tax expenditure.  The report even calls for a process whereby tax expenditures could automatically expire.  Helpful information about tax expenditure redesign and reform efforts in other states is included.  The report also provides an invaluable tool for amateur budget-balancers, because it lists all tax expenditures and the multi-billion cost to the public for breaks ranging from the home mortgage deduction to the tax breaks given to ministers for their housing, to a very long list of sales tax exemptions on a seemingly random list of services and goods.

The political benefits of removing tax expenditures are obvious.  They plausibly can be described as expenditures that cost the state revenue, not just tax increases.  Removing them constitutes a form of redesign and reform.  And Republican majority members in the House and Senate are to be commended for openly debating the merits of this approach to rasing new revenue.

And finally, it's a hopeful sign that the letter to Dayton was not actually written in blood and the tone remains civil and hopeful.  While the signers affirm they are "opposed'' to tax increases, they also say they are "working diligently...to indentify and develop the concepts for long-term redesign and reform."  And one of the more hopeful signs of possible compromise is that we simply don't hear much at all about ironclad "pledges" not to raise any new state taxes under any circumstances whatsover.   Those were a fixture of all-cuts sessions a decade ago, and many thoughtful Republicans such as former House Speaker Steve Sviggum never signed them, and warned against them.

Dane Smith 

Don't count Sunday liquor tax revenues just yet

The latest debate over Sunday liquor sales in Minnesota has featured claims that Minnesota is somehow missing out on $10 million in tax revenues.

Puhlease.

I've debunked parts of this claim via twitter and comments sections, but thought it worth a post because this shows how interest groups can use data to mislead the public and policy makers. I wrote about this when it came up last session and won't repeat myself here.

Let's focus on this commentary by the Distilled Spirits Council published in the Strib with the subhead: "The Sunday ban on liquor sales costs state an estimated $10 million." The author says:

Colorado, the most recent state to enact Sunday sales, even saw its 2008 alcohol excise tax revenue collection increase by 6 percent despite the toll of the recession.

Well, not quite. Colorado's 2008 alcohol tax revenue, according to the state's annual report, only increased by 1.5 percent over 2007. But since Sunday sales took effect July 1, 2008, perhaps the author meant the 2009 fiscal year ending July, 2009. A Denver news report says:

Colorado State Treasury’s data shows that liquor, beer and wine tax revenues increased by $2,056,858 in the 12 months following July 1, 2008, when the bill allowing Sunday liquor sales went into effect.

Now, there may be various reasons why Colorado saw a bump in 2009, but why should we suppose the growth in FY 2009 was due to Sunday sales? Especially when Minnesota's alcohol tax revenues increased almost $3 million between FY 2008 and 09 [PDF], without benefit of adding Sunday sales?

Another claim made in the piece:

A national analysis of states that allowed Sunday sales between 2002 and 2005 (12 states) showed that in 2006 each state saw an average 5 to 7 percent increase in tax revenues.

I have no doubt that's true, since during the same period, Sunday-deprived Colorado saw a 10.3 percent gain and Minnesota saw a 3.3 percent gain.

In other words, revenue from alcohol sales slides around from year to year, and depending on the period you select, you can make the numbers dance your dance.

But the most troubling thing to me is the takeaway the Strib opinion piece is allowed to leave. Even by the Distilled Spirit Council's own estimate, only about half of Colorado's $2 million gain in one year could be attributed to higher liquor store sales. (Two percent of the 6 percent gain was the national average gain and about 75 percent of the alcohol taxes collected come from package liquor stores, according to the Council,)

Allowing for Minnesota's higher alcohol tax rate overall (it takes in roughly double what Colorado does), how do we get to $10 million more in tax revenue with Sunday sales?

We don't.

And if you think the difference is coming from recaptured sales lost to Wisconsin, please comment here so I can debunk that one, too.

— Charlie Quimby

Cross-posted from Across the Great Divide

Footnotes:

Count Sales Taxes, Too?

Since beer and liquor excise taxes are based on volume, not retail price, this revenue doesn't grow with inflation or consumption of higher-priced beverages. So Minnesota also has a 2.5 percent gross receipts tax on alcohol to account for sales growth. Some counties and cities also levy a liquor tax at retail. Excise tax amounts vary by product.

Only these alcohol-related tax revenues are reported by the state in the numbers above, so let's be generous and include the other retail sales taxes applied to alcohol sales in our attempt to justify the $10 million tax figure.

Just as an example, the excise tax on a 6-pack of strong beer is 8.4¢. The total sales tax on a $7.99 6-pack purchased in a Hennepin County suburb this week was 78¢ for a total of 86.4¢.

Counting all the state and local taxes applied to the sale, it would take more than 11.5 million additional 6-packs sold to produce $10 million in new tax revenue. Liquor excise taxes are much higher and would account for a portion of the increase, so obviously we wouldn't have to drink that much more beer.

But you get the idea. The a state that saw its liquor consumption drop by 8.1 percent in 2009 would have to see millions of additional sales with dollars that would otherwise be spent on non-taxable items in order to produce significant new tax revenues.

The Wisconsin Dash

Since it's unlikely Minnesotans will drink that much more if they are given one more off-sale day a week, another theory is that these increased tax dollars will come from Minnesota residents currently buying on Sunday in an adjoining state.

Most of these theoretical sales would have to come from Wisconsin, where the biggest tax differential between states exists — and where Minnesota has a sizeable population within a 20-minute drive to a Wisconsin border town. This is not the case in Colorado, but might be in Connecticut, where the same battle is ongoing, with the Distilled Spirits Council running ads that claim ending the ban will generate $8 million in new revenue per year.

The Distilled Spirits Council champions Sunday sales laws nationally, not the local retail sellers, and is the primary purveyor of the increased taxes story. The industry's own fact sheet [PDF] shows that liquor sales in Colorado were flat from calendar year 2008 to 2009, when the state went from half a year of Sundays to a full year.

No wonder the predicted numbers aren't showing up — the Council is looking for ways to boost its sales.

Unconscionably bad math on government growth

The 66th anniversary of D-Day got me to ruminating on the tremendous sacrifice and the high tax rates that we imposed on ourselves during arguably our finest hours as a nation. It also got me to thinking about the funny numbers flying around these days about our governmental costs and obligations.

The way Gov. Tim Pawlenty and other government-bashing politicos would do the math, our nation now has spent between two and three times more on our war in  the Middle East than we did on World War II.  And using this same childlike finger-counting, the average American family today is 20 times richer than the average family was in 1950. 

This is the falsehood you get if you only count actual nominal greenbacks to make your case. In physical dollar bills, we spent some $300 billion on the largest war in our history, between 1941 and 1945. On the much smaller conflict since 9/11 in Iraq and Afghanistan, we have spent $809 billion in actual dollar bills. Similarly, average family income in 1950 was less than $4,000 and now is about $80,000.

Even amateur students of history and economics knows that this method of counting is ridiculous, and that you have to account for inflation and the size of the economy to get a true perspective of costs and benefits. During the peak year of World War II, total military spending consumed a staggering 37.5 percent of our total GDP. And during the peak year of our Middle East War,  the total military spending as a percent of GDP was 4.2 percent, according to a recent report by the Congressional Research Service.  And we all know very well that a family making $12,000 a year these days is living in poverty, and is not three times richer than the average family in 1950.

And yet Pawlenty and other anti-government operatives have been going around the nation and the state using nominal dollars to claim that state government was growing  on average 21 percent between 1960 and 2002, when he became governor, and that since then  he's heroically got the growth rate down to  2 percent a year. The increasingly strident and unreliable  Wall Street Journal editorial page has reprinted these claims. 

Pawlenty typically cheats, by double,  with artful phrasing on this 21-to-2 claim, and by using biennial growth to describe the previous growth rate. MinnPost's Eric Black has written a superb and detailed piece  explaining how badly Pawlenty is distorting the numbers, including the wry observation that by this way of reckoning, Minnesota National Guard spending alone on Middle East deployments probably would exceed the amount we spent on the entire Revolutionary War (what a bargain, $100 million, according to CRS). Black notes that because of a dreadful decade of economic decline, low inflation and revenue shortages, almost every governor in America these days could claim to be the most fiscally conservative in their history. (Black also refers  to our own excellent op-ed on the subject, several months ago, which makes the case that much of the ACTUAL growth in government through the 1990s was good for Minnesota people and good for business too.)

The ultimate irony is that even without the gross distortions, Pawlenty does deserve to be known forever as Tightwad Tim, the most ideologically pure penny-pinching governor in our recent history.  If you look at the  most comprehensive measure of government cost, the Price of Government figure from Minnesota Management and Budget, state and local government revenues are down from roughly 17.5 percent through the 1990s (a level we think is about right for sound investments in people and infrastructure) to about 16 percent in the aughts. That's about $3 billion less per year — for hospitals, schools and highways — than if we had NOT cut income tax rates permanently in 1999 and 2000 and if Pawlenty had NOT adhered to a rigid no-new-taxes ideology since becoming governor.

But here’s the other shoe dropping, a question that begs asking. 

Are we better off than we were in the 1990s? By almost any measure that is applied for quality of life and business conditions, and for most of the population in the middle and lower-income realms, the answer is "no". The exception, until very recently, might be those at the very top of the income scale. They have a larger share of income and wealth than when the decade started and their state-local effective tax rate is lower, according to the Minnesota Tax Incidence study.    

The Bush-Pawlenty tax-cut decade overall was the worst in memory for most people, with two major recessions, no gains in actual wages for the vast number of families in the  middle incomes, and real losses for those in the bottom two or three deciles. As the Bible says,  a tree should be judged by its fruit, adjusted for inflation and economic growth, of course.

—Dane Smith   

 

Renowned economist links global economic crisis to vast piles of unrecorded transactions

In an extraordinary conversation at the U of M last week (somehow completely missed by the Minnesota news media) renowned economist Hernando de Soto delivered a fascinating and disturbing theory about the root cause of the continuing global economic crisis.

When the crisis exploded in the closing months of the Bush administration, de Soto said, he was stunned to hear the very top American financial regulators admit that they simply did not and could not know how much  "unrecorded paper'' and undocumented financial dealing  had been going on in the national and world markets.

Regulators basically were saying, "We don't really know what's going on,'' said de Soto. Developments in the world of derivatives and credit default swaps somehow resulted in western capitalism abandoning one of its most valuable characteristics and the true secret to its success. In de Soto's view, that secret is the fact that almost nothing is really secret, and "everything of value is recorded.''

Recurring crises and aftershocks, like those in Dubai, Greece and Spain, can be expected to continue, de Soto said. "You don't know who's next because you don't have the documentation.''

De Soto is a Peruvian, director of the influential Institute for Liberty and Democracy, by all accounts a brilliant thinker and theorist. He is an admirer of western capitalism, but also a promoter of capital formation in developing nations to benefit the poor. It's hard to imagine an economist who is more in sync with the idea that  business growth AND social justice must be pursued simultaneously. He's been highly praised by both Ronald Reagan and Bill Clinton. His Holy Grail is convincing developing nations to build truly democratic and legitimate governments while getting their economies to abandon informal and corrupt systems and emulate western models of transparent and documented transactions.

The mainstream Twin Cities news media, partial victims of the crisis, continues to miss important developments in its own backyard on the global and national economic crisis. A couple of weeks ago, two substantive speeches in the Twin Cities by U.S. Rep. Barney Frank, a chief architect of the financial reform package in Congress, went uncovered by larger mainstream media, newspapers and broadcast.  

Fortunately for us, de Soto's entire dialogue with Brian Atwood, dean of the Humphrey Institute and a longtime friend of de Soto's from Atwood's days as director of the U.S. Agency for International Development, now can be viewed on the College of Continuing Education's "Great Conversations'' webpage.

It's great stuff. DeSoto's view of the West from a Third World perspective is enlightening and at times encouraging. He seems to be saying we have the right idea, and that we've been a role model, that democracy and markets work well for all people as predictably as "aspirin or an MRI," but we can't regress to developing world standards and turn our economy over to corrupt outlaws who operate in the dark.

— Dane Smith

Palin v. Kersten: Contradictory messages from anti-tax zealots

The Tea Party movement fancies itself a populist uprising.   The basic theme is that working stiffs and ALL Americans are overtaxed and that ordinary Americans can't possiby pay another penny without becoming slaves to a socialist government.   Sarah Palin herself articulated the message for the umpteenth time at a rally in Boston on April 15, clearly implying that taxes were a big burden on all us regular folks.

Palin said:  "We need to cut taxes so that our families can keep more of what they earn and produce, and our mom-and-pops, then, our small businesses, can reinvest according to our own priorities, and hire more people and let the private sector grow and thrive and prosper."  

But to fight off the sunsetting of  federal tax breaks for the very wealthiest Americans, another set of anti-government zealots (including Minnesota's own Katherine Kersten) was busy last week telling us that half of Americans pay no (federal income) taxes at all.   Only halfway through her column does Kersten back away a little bit and allow that almost all taxpayers pay other kinds of federal taxes.   And Kersten never bothers to mention the hugely important fact that the effective tax rates for state-local taxes are highly regressive, much lower for the top than for the middle and the bottom.

The Palin and Kersten assertions are not only thematically contradictory, they seriously distort these basic truths: Everybody pays taxes and taxes are good and necessary.  Those taxes finance our mostly beneficial governments and provide strategic investments that grow jobs and maintain our quality-of-life.   The overall federal-state-local effective tax rate in Minnesota and the United States has been declining for a decade.  And the wealthy pay a smaller percentage of their income than they did 50 years ago.

For an informed analysis of the "half-pay-no-taxes'' assertion, check out New York Times columnist David Leonhardt's explanation.   He points out that:  only about 10 percent of Americans are so poor they pay no federal taxes, that tax rates for the wealthy have fallen signficantly, that they have a much larger percentage of the nation's total income than they used to have,  and that rich conservative talk-show celebrities probably don't want to pay more for Social Security and Medicare for those ordinary little people on the bottom half.

Dane Smith