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

 

 

Top 10 Facts About our LOW Taxes

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Dane Smith 

Jason Lewis' gaping omission in attack on nonprofits

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

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

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

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

Dane Smith

 

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

 

 

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

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

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

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

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

 

-Dane Smith 

Catholic and Lutheran mainstream leaders fight for justice in budget-balancing

Anti-government conservatives often cloak their movement in a religious mantle and enjoy disproportionate support from the fundamentalist brand of Christendom, while unfairly dismissing progressives, economic and otherwise, as irreligious.  So it's a powerful refutation of that notion when our states' Catholic and Lutheran bishops, representing a vast mainstream of some 2 million Minnesotans, issue the kind of statement they publicized last week.  In a joint letter to lawmakers detailed on MinnPost.com, the Roman Catholic and ELCA (Evangelical Lutheran Church in America) bishops pointedly advised that "the most telling measure of how well we care for each other is to consider how we treat those who are most vulnerable among us."  And lest one think that's too vague about whether to impose an all-cuts budget or to raise some taxes, the letter pointedly describes the state budget defict as "an enormous challenge that suggests both dollar savings and increased income (italics mine) to achieve a balanced budget that avoids devastating cuts in services to vulnerable people."  Some budget hawks in demanding less government for social services will point to the churches as having that primary responsiblity.  The leaders of our state's largest churches are saying, in effect, that they can't do it all and that the government has that primary responsibility.  The organization that embodies a compelling and truly broad religious alliance for economic equity and justice is the Joint Religious Legislative Coalition, which adds other Prostestant mainstream denominations and Jewish and Islamic leaders to the voices for common good and a more progressive tax structure.  This week, watch for a strong presence at the Capitol and visits to legislators' offices from the Lutheran bishops in particular.

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 

Round-up of good news and commentary for practical progressives

Here's a round-up of some particularly good fodder for practical progressives in the news recently:   

• Washington Post columnist Ruth Marcus is continuing to develop as a thoughtful centrist heir to David Broder and she really hit the mark with her recent commentary (headlined in the Star Tribune, "If taxes never go up, we go down''). Marcus nailed Gov. Tim Pawlenty for his recent statement implying that the U.S. has higher taxes than most other nations, pointing out that our overall effective federal tax rate is much lower than it was a decade ago, and lower than all but Mexico, Turkey and South Korea among the 30 major world economies. Marcus skewered conservatives for continuing to claim that tax cuts actually produce more revenue and for their perennial complaint that "whatever level taxes are at, they are too high.'' Just a couple weeks ago, Marcus took on liberals and Democrats for refusing to acknowledge that some entitlement programs might have to be trimmed.
• One of the most refreshing "good that government does'' stories in recent memory landed on the St. Paul Pioneer Press front page over the weekend. An article headlined "Minnesota air pollution:  It's not as bad as you think,'' emphasized the rather astounding good news that since the landmark Clean Air Act of 1970, emissions from industrial polluters and vehicles have been slashed by 62 percent nationally and by half in Minnesota.
• Refuting a lot of conservative anti-Europe propaganda recently, author Steven Hill placed an op-ed in the Star Tribune pointing out that Japan and Europe and their more egalitarian market economies are doing quite well compared to the United States. Hill is the author of "Europe's Promise: Why the European Way is the Best Hope in an Insecure Age.''
• Finally, we think we offered a strong rebuttal to the false claim by some conservatives that government can't create jobs, or more broadly, that government is a net drain on the economy and can only consume wealth. Our Star Tribune "Counterpoint'' piece reviewed a long history of business-building investment and job creation in the U.S. and Minnesota.

— Dane Smith