Guest Commentary: Raising taxes is the answerWhat’s good for North Shore businesses and Twin Cities corporate employers usually is good for Minnesota.
By: Charlie Quimby, Dane Smith, Growth & Justice, Lake County News Chronicle
What’s good for North Shore businesses and Twin Cities corporate employers usually is good for Minnesota. And despite our gigantic state government revenue shortage, some proposals at the capitol to give further tax cuts and credits to corporations and businesses deserve a serious look.
But let’s get a grip, and you might want to put down your coffee cup. Minnesota’s state government needs to raise taxes by as much as $1 billion a year. Take a breath, it’s going to be OK. That’s only four-tenths of 1 percent of our annual total personal income of $230 billion And with that increase, the total portion of our income paid in taxes would still be smaller than it was a decade ago.
The assumption that more budget cuts and tax cuts are the only way to deliver economic health is just plain wrong. It misses the truth on the flip side: What’s good for the public also is vital for business in the long run.
Consider these crucial business assets, delivered via government and paid for with taxes: Education, unlocking human potential and productivity. First-class highway and transportation systems. Speedy, impartial courts. Healthier children and workers, with elderly folks living in dignity.
In rural Minnesota and the North Shore, this is important public stuff and the government part of the economy is especially vital. Research shows that rural areas are significantly more dependent on public outlays and government services than metropolitan and suburban areas. Anti-tax, anti-government extremism is wrongheaded for our nation and state as a whole, but it is particularly harmful to the economic interests of northeastern Minnesota.
But for the past decade in Minnesota, we tried to have it both ways. We thought we could keep what is essential to our general prosperity without having to pay for all of it. Instead, we were told by anti-tax conservatives that job growth fueled by lower taxes would pay the bills.
Instead, our overall state economy is weaker, and our famous quality of life is in decline.
To support their case that further cuts are the only way to fix the budget, proponents of “No New Taxes” continue to insist Minnesota is a big-government state, inhospitable to business growth.
In fact, no state has cut government revenue and spending more than Minnesota since 1999. A 2008 Revenue Department analysis concluded that Minnesota is “just about average” in terms of its combined state and local tax burden.
By our high standards, public investment is at all-time modern low. State Economist Tom Stinson often displays a chart showing that Minnesota’s Price of Government (total state and local revenues as a percent of personal income) has dropped from a high of about 18 percent in the mid-1990s to about 16 percent now. That amounts to a whopping $4.6 billion a year less than if we had kept the public sector financed at the 1990s level — a period when our economy was outperforming almost every other state in the Midwest.
After a decade of cutting corners and under-investing, our state’s public structures are showing the strain, in ways that damage business interests. A few examples:
Supreme Court Chief Justice Paul Magnuson has been traveling around the state to make the case personally for no new cuts to the state’s stressed court services — taking on the governor who appointed him. Courts and rule-of-law are essential for public safety but also for conflict resolution and contract enforcement for businesses.
Delays and deteriorating roads, due to the state’s fast-growing congestion and crumbling transportation infrastructure, build higher costs into the prices of products produced or sold here.
Our public schools are being forced, in effect, to loan money to state government. Students at Minnesota two-year colleges pay the third-highest tuition and fees of all 50 states. And Minnesota faces a growing achievement gap between white and non-white, and affluent and poor households. These trends represent an erosion of Minnesota’s educational advantage, the bedrock of our business success.
We now have the largest percentage of Minnesotans without health insurance in recent history. Some 480,000 children, men and women now lack health insurance, and that population is scheduled to increase this year. State assistance with medical coverage, a program slashed deeply by budget cuts, actually helps remove pressure on employers to provide this expense.
From the current depleted baseline, the governor proposes to cut the state budget by another $1.5 billion. More tax cuts would inflate that damage.
Here’s a wiser, sustainable course toward restoring the economy and closing a three-year projected shortfall of about $5 billion: Cut more judiciously; vigorously pursue government redesigns to improve efficiency; and raise taxes by as much as $1 billion a year.
Raising taxes is a time-tested budget-balancing tool that has directly led to fiscal stability, higher bond ratings and economic growth. Since the 1960s, every Minnesota governor, including two Republican governors who have repeatedly criticized the No New Taxes strategy, raised or tried to raise tax revenues when facing crisis-level shortfalls. So far this year, 29 other states have raised rates or broadened taxes to address budget imbalances.
The first and best option should be to restore the personal income tax rates closer to 1999 levels. Nationally, those fortunate to be at the top of the income ladder are enjoying a greater share of income and wealth than they’ve had in almost a century. The wealthy households actually pay a smaller proportion of their income in state and local taxes than any other income group.
Substantial increased revenues also could come from broadening the sales tax base to currently exempt services and clothing, or repealing other tax breaks. By taxing more diverse items in the growing service economy, the overall rates could actually be lowered, and tax credits or thresholds could be employed to reduce disproportionate impact on low-income consumers. Politically, it might help to adopt these changes in stages or as temporary rate increases.
Minnesotans are right to want the right price for government and the best quality possible. We need to set goals and improve government performance. Initiatives by foundations and civic groups are underway to redesign our most costly governmental systems so that we get better results for the dollars we spend. And we must insist that our new governor bring energy to restoring Minnesota’s tradition of good-government innovation.
It’s time to reaffirm the connection between intelligent investment for public benefit and the state’s wealth and quality of life. Minnesota’s enviable economic performance didn’t spring entirely from individual effort, private capital and low business and labor costs. It came from community-minded people who built and preserved public assets — and gladly paid for them with taxes.
Charlie Quimby is a former small business owner and a Communications Fellow for Growth & Justice, a non-profit research organization that advocates for greater economic equality. Dane Smith is president of the group.