How would you balance the State’s short- and long-term budget problem?

Gov. Pawlenty announced his short-term budget cuts yesterday (MPR). Local impact? Nlfd News says: Northfield to lose $356,000

Figures released today by Gov. Tim Pawlenty show Northfield’s anticipated Dec. 26 aid payment will be $356,000 short of what city leaders expected… The governor’s decision reduces the amount Northfield will receive next week by a little more than 4 percent — from $1.56 million to $1.21 million. It’s unclear how the city will deal with the unallotment. The city is required by law to balance its annual budget.

Today’s editorial in the Nfld News: Gov. Pawlenty, give back our money

Taxpayers are not legally allowed to tell the state that they didn’t make enough money this year to pay their taxes, so why should the governor be allowed to use essentially the same argument? …  And while they’re at it, perhaps legislators should consider ending the governor’s authority to unilaterally take money away from our communities through unallotment.

Sen. Kevin Dahle blogged about the impending LGA cuts earlier this week:

dahleIf the Governor is set on using LGA to fill that gap, I hope he makes proportional cuts that will allow cities and counties to still receive badly needed checks this December instead of a blindsided approach that leaves our local governments reeling.

charlie kyte Seems to me that Pawlenty handled it reasonably well, especially in his sparing small towns and small counties from the short-term LGA axe… as well as military, veterans, K-12 education, and public safety (press release). I saw Northfield resident and Minnesota Association of School Administrators (MASA) Executive Director (and blogger) Charlie Kyte at GBM this morning and he agreed.

Besides, we’re not in such bad shape here in Northfield. City Finance Director Kathleen McBride commented here on Locally Grown back in early Dec when I asked her about City’s vulnerability to further cuts:

kathleenmacmcbride-thumb1We have already received notice of our 2009 state aid amounts. The dilemma is what the potential cuts could be and when they would be made. It is possible that the governor – and the legislature could “un-allot” 2009 aid in 2009. This would cause local governments to have to make mid-year budget reductions.

The City does have a $722,000 “revenue stabilization” reserve for this very purpose. This at least allows us some wiggle room should the cuts occur suddenly.

Rep. David Bly blogged about the State’s BIG budget problem earlier this month. He alerted me to it via email:

blyIn my most recent post I talked a bit about the budget crunch we are facing at the State level, I encourage constituents to weigh in on suggestions for the resolving the budget problem.  It occurred to me that Locally Grown might be a place to generate some discussion.  I do genuinely want to hear ideas from those who are interested in offering them.  The $5.2 billion short fall will not be made up by using one approach or by a simplistic solution and the more ideas we have to work with the better.

Sen. Dahle makes a similar plea in his Thursday blog post.

We’re planning to have both Rep. Bly and Sen. Dahle on our radio show/podcast in the next two weeks, so now’s a good time to start the discussion.

How would you balance the State’s short- and long term budget problem?

596 thoughts on “How would you balance the State’s short- and long-term budget problem?”

  1. IMO, Emmer hasn’t ‘got a clue’ and is a disaster waiting to happen if , with the support of the conservative Republicans of MN takes us further down the road to the loss of progressive reputation that MN used to have…

    We started that perilous journey with Gov. Pawlenty who hid some of his more conservative agendas in his campaigning for the seat; if Emmer goes this far in his campaign speech, what lies around the next bend in the road?

    ‘There be Dragons’ ?

  2. Hey, readers… this thread just turned over a new page and it is important for you to go back to comment 450, Paul Zorn from earlier this AM, because he re-upped this thread with that comment…

    1. Thanks for the reminder about “page breaks”, Kiffi.

      Here, for convenience, is the content of #450:

      Another long-dormant thread that should, perhaps, be re-awakened.

      State Rep. Tom Emmer, now the Republican gubernatorial candidate, has some ideas (I’m paraphrasing Lori Sturdevant’s Sunday column in the Strib): Eliminate state aid to cities. Replace government health care subsidies for the poor with tax incentives for charity care. Prohibit government support for alternative energy. Cut the state’s all-funds spending by 1/3.

      Big ideas, to be sure. Do they add up to a program, or is this just posturing?

      Hint: Emmer also supports an amendment to require a 2/3 legislative vote and a gubernatorial signature before new federal laws would take effect in Minnesota. There’s a little problem with the US Constitution …

      Like Kiffi, I worry about Emmer. But I wonder what our (relative) conservatives think. Ray?

  3. The news media already picking up on Emmer’s statements re: MN not following Federal law…
    I remember when “Harper’s” literary magazine had a cover with a cartoon of J. Ventura, and the cover story was “Minnesota elects a toy/ action figure Governor” …

    Are we headed for another embarrassing magazine cover? or have the Republicans assured a democratic Governor in MN?

  4. I really don’t have a lot of hope in either political party alone to get us out of our present morass. It appears to me that neither party has a monopoly on greed and cronyism. I always thought Wellstone had a good ideal in his litany to stand up for the little guy. Unfortunately, he found out that it was the big guys who actually paid his meal ticket. You soon learn not to bite the hand that feeds you. I don’t think it matters if you are talking about “big” business, “big” oil, “big” labor unions or “big” government. The common problem here is “big”, as if bigger somehow means better.

    As far as balancing the budget by just shifting funding responsibilities around from federal to state to local levels, anyone who thinks this is actually going to reduce the cost of government is, IMO, deceiving himself. Unless there is an actual reduction in the cost of government, there cannot be a balanced budget without raising taxes. Right now, there seems to be in the general public a sentiment of distrust in the current government system to efficiently distribute the taxes collected. It seems to be the age-old tension between the philosophies of large or limited central government. Unless anarchy overtakes us, this tension will continue, and, hopefully, in the balance of the two, we will be able to come up with a system which actually works. In the mean time, who is paying, and to whom, the interest on the national debt? I think it was Margaret Thatcher who said something like socialism will only work until they run out of people to tax.

  5. Kifi, I think what Tom Emmer is meaning is that state government has simply grown too large for us to support. There are many reasons for this which I won’t go into here, but one of the easiest ways to look at it is this: If state spending had kept pace with regular inflation for the past 20 years we would be spending about $8 billion less in our budget. That isn’t holding things flat—it is granting a generous full inflation adjustment each and every year. But as we all know, state spending has been moving along at almost twice that rate hitting about 5% per year for the past several years. I believe Emmer will take the position that we have an unsustainable growth in state spending.

    Can Tom Emmer remove $6 billion of spending from the budget next year? I think it would be very, very difficult given that the legislature is going to probably remove another $1B yet this biennium. However, I know he will want to give it his every effort to reduce state government.

    There are many things that got bloated over the past 20 years. Local Government Aid is one of them. While I don’t support a wholesale abandonment of LGA, I do fully support a major overhaul that would probably lead to far less LGA spending that we will end up with this current biennium. When you have a strong, healthy, property rich city like Northfield that at one time I believe received about $2.5 million in LGA you have a broken system. It should be reigned in substantially.

    But the biggest issue, and one I keep harping on, is demographics. Minnesota’s population is aging very quickly. We are going to look far different in 10 years than we do now. Legislators who only have ‘one trick’ which is to preserve the status quo are doing us all a huge disservice. We need to start major work on planning on a new Minnesota. It is impossible to ‘tax the rich’ to close a budget gap that ‘protects the status quo.’ It simply cannot be done. And while our demographics are difficult, our economy is creating temporary (I hope) problems in that all tax collections are down.

    I will say this—our election for Governor in November will surely give us two distinct choices. For years many people have said ‘it doesn’t matter who you vote for; they are all the same.’ The DFL is going to have the most far left candidate I believe has ever been on the ballot for Governor when they sort out their three. The Republicans have endorsed a fairly far right candidate in Tom Emmer. The voters have a real choice this year.

  6. Ray…You said…

    “The DFL is going to have the most far left candidate I believe has ever been on the ballot for Governor when they sort out their three. The Republicans have endorsed a fairly far right candidate in Tom Emmer. The voters have a real choice this year.”

    Maybe it’s time for a win by the Independent party? Someone who is willing to look at both revenues and expenditures, rather than electing either the ‘no cuts’ or the ‘no taxes’ candidate.

    1. William- You might have something there. It has happened before, so, if the Independents serve up a realist with some common sense and a workable plan, it might actaully happen. Of course, a realist with common sense would probably not be in politics. That, unfortunately, may limit their ability to propose a viable candidate, but then, that is just my opinion.

    2. William,

      How literally do you mean the “no cuts” label for the DFL? Has any candidate made such a pledge? Or do you just mean that DFL-ers tend to resist cuts more than they resist taxes? (I’m not, here, advocating for or against anything … just wonder what’s been promised or proposed.)

      In any event, I see electing an Independence Party candidate as asking for trouble, and continued gridlock. It’s easy for an IP candidate to triangulate the major parties on contentious issues, and thus to come across as a voice of sweet, moderate reason. (Our unhappy Ventura adventure is just an anecdote, but an instructive one.)

      Big parties, for all their faults, are pretty much the only games in town for building coalitions large enough to pass legislation. That’s why I’m a (two) party animal.

      1. Paul…I don’t have much faith in either party’s candidate to lead in a moderate, common sense manner. So if we can get a leader that can build coalitions of moderate republicans and moderate democrats because he or she is not of either party, then I’m all for it. I don’t think that will be possible with the current candidates.

  7. “The Republicans have endorsed a fairly far right candidate in Tom Emmer.”

    That’s an understatement. Tom Emmer is a serious anti-Federalist, with a unique vision for reconfiguring our nation.

    Mr. Emmer wants to amend the Minnesota state constitution to require that EVERY SINGLE LAW of the United States would have to be approved by a 2/3 majority of the Minnesota state legislature before it would be considered the law of the land in our state.

    Sure, it will never pass constitutional muster – but it would be kinda fun to see the country forever after referred to as The United* States of America.(*: status not applicable in the State of Minnesota without prior endorsement by a supermajority of Minnesota state legislators.)

    1. Patrick: Emmer’s interpretation is not unique. State supremacy was a given until the time of the Civil War (or perhaps more accurately, the War of the Northern States’ Invasion). When southern states attempted to exercise the apparently legal perogative of forming their own confederacy, Abraham Lincoln used federal troops (who were supposed to be protecting the country not invading its own people) against the southern states.

      As far as I know, there is no constitutional provision preventing a state from ceding from the United States of America, nor has the issue been decided by a court of competent jurisdiction. What is clear is that the Constitution cannot be amended except by a supermajority of states, that states can offer its citizens greater protections than the feds offer, that states may keep their own militias, that states get to send their own elected officials to govern the federal government, and that states, acting through their electorates to the Electoral College, get to pick the president.

      Emmer’s idea is goofy because it will never happen, not because it is unconstitutional.

    2. David,
      When I said “unique,” I was referring not to his general philosophy, but to his particular proposal – which goes far beyond what most states’ righters advocate. His remarkable proposal not only claims a right of the state to reject federal laws, but goes one step further by nullifying EVERY Federal law by default, and only allowing them to be accepted individually, and by a higher threshold than is required for passing a state law – or even the threshold currently required to cut off debate in the U.S. Senate. It’s a beautiful recipe for guaranteeing that no federal laws would ever apply in Minnesota.

      However, I do agree that Tom Emmer shares his general belief in Nullification with the Southerners who seceded from the Union in order to preserve their “peculiar institution” of slavery, as well as with their descendants who attempted to nullify the laws intended to end desegregation a century later.

      Still, this places Tom Emmer, at best, well outside the mainstream of modern political thought. On the other hand, the crazies are resurgent, so maybe he’ll fit right in when Palin is elected President.

      1. Patrick: In 1857, the United States Supreme Court reaffirmed that slavery was legal (Dred Scott). It wasn’t until after the war that slavery was declared illegal. (Abe Lincoln’s Emancipation Proclamation issued almost 2 years after the war began had no binding effect upon the other branches of government.)

        While it is convenient, especially for Northerners to believe that the Civil War was fought over slavery, the reality is that the southern states wanted greater state autonomy over its own issues (including slavery).

      2. David, the Southerners wanted autonomy including keeping slaves despite the North’s ‘writing on the wall’ that slavery was coming to an end. Dividing the issue as “autonomy vs. slavery” is completely inaccurate. The two issues were inseparably joined.

        Remember the effect of John Brown’s terrorism (if I may call it that). Brown’s effort to give guns to slaves is considered by some historians to be the turning point, a galvanizing act that made the Civil War inevitable. Brown apparently didn’t care about autonomy, but slavery, and slavery was the issue that galvanized the North. Whatever war the South was fighting, the North was fighting against slavery. Slavery was the issue that threatened the Union.

        At best, autonomy was a second reason for the Civil War. At worst, I hear this white washing of American history, trying to honor the racist and vile Confederates as heroes of states’ rights. How amazing, how horrifying it must have been to live in a time when killing, torturing and exploiting a class of people was accepted by those in power, and to see 150 years later that issue minimized and dismissed. Does anyone allege that the South intended to end slavery on its own? While mechanized labor was in its nascent stage, and some historians said that slavery would have inevitably ended because of machines, does anyone now say that the pre-war South was planning or in the process of ending slavery before the first shots were fired? If so, please cite. If not, any effort to minimize the role of slavery in the Civil War is unreasonable revisionism.

      3. Here are the articles of Secession of South Carolina:

        As you may notice, southern secession was EXPLICITLY (though not necessarily exclusively) about slavery. This wasn’t about States Rights. Many northerners opposed States Rights when it came to determine the status of slavery within a state/territory. Many southerners opposed States Rights on fugitive slave laws. The defining issue was slavery, with Federalism vs. States Rights being inconsistently used to justify positions on slavery.

    3. David:

      As you say, Emmer’s views are not unique. “Tenthers” have been around since the founding fathers. But the constitutionality question seems to me more complicated than your summary would suggest. And, while the Civil War certainly touched on state supremacy, that doctrine seems hardly to have been a “given” until then.

      Here are some excerpts from The American Prospect (published by a liberal-leaning think tank), which bear on the “tenther” perspective and its history:

      President Franklin Delano Roosevelt spent much of his first term combating a tenther majority on the Supreme Court, which routinely struck down substantial portions of the New Deal.

      … while the Depression-era justices provided much of the movement’s intellectual framework, today’s tenthers are extreme even by 1930s standards. T he Constitution gives Congress the power “to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States,” thus empowering the federal government to levy taxes and leverage these revenues to benefit the American people. Tenthers, however, insist that these words don’t actually mean what they say, claiming that spending on things like health care, education, and Social Security is simply not allowed.

      Their basis for ignoring the plain language of the Constitution is a statement by James Madison that federal spending is only really permitted when it advances one of Congress’ other enumerated powers, such as by building a post office or funding a war. Since the words “health care” do not appear in the Constitution, there can’t be any federal power to pay for health care, and the uninsured can eat cake.

      Although tenthers are correct that Madison did make such a statement, his views hardly reflect the founding generation’s consensus. Alexander Hamilton, the nation’s first Treasury secretary and a co-author of Madison’s Federalist Papers, emphatically rejected Madison’s claim that the words “provide for the … general welfare of the United States” have any kind of secret meaning. Moreover, it is not even clear that Madison still believed that the Constitution requires a decoder ring when he was elected to the White House. Justice Joseph Story, whom President Madison appointed to the Supreme Court, was a Hamiltonian.

      I’m interested to know that there may be no constitutional provision preventing a state from “ceding” (do you mean “seceding”?) from the US.

      But surely not even Emmer is proposing this, is he? If so, I’d really like to know.

    1. David can “speak” for himself, but I don’t read him as minimizing or dismissing the evil of slavery.

      The questions at hand, I think, concern states’ rights, the 10th amendment, and (originally) the connection of all of this to candidate Emmer’s (IMO) peculiar and demagogic, but not historically unprecedented, views on “nullification.”

      The role of states’ rights in the Civil War is an interesting and complicated question in its own right — even if somewhat tangential to Emmer’s candidacy and its implications for the Minnesota budget. Even if — as I believe — the states’ rights argument was used cynically then by the Confederacy as a fig leaf for slavery, and since then often in other deplorable and racist ways, it doesn’t follow that the states’ rights controversy is nothing but a cover for slavery. On the contrary, some of the earliest flareups centered mainly around issues of taxation … seems we’re back to that now.

      I’m no historian, but even casual browsing suggests that the states’ rights issue is old and broad in American history. It’s related to the difference between the Articles of Confederation and the Constitution, and it has often pitted one big shot against another: Madison vs. Hamilton, John C. Calhoun (he’s got a lake in Minneapolis) vs. Andrew Jackson (when Calhoun was his veep!). Daniel Webster and Henry Clay also got into this act.

      And now comes … sigh … Tom Emmer.

  8. David, I think Lincoln would disagree with what you wrote:

    “While it is convenient, especially for Northerners to believe that the Civil War was fought over slavery, the reality is that the southern states wanted greater state autonomy over its own issues (including slavery).”

    Check out Lincoln’s Second Inaugural Address, especially the third paragraph:

    David, your interpretation belongs to the “Lost Cause” school of thought, which believes that slavery was not central to the cause of the civil war.

    1. Curt: Lincoln’s address makes it pretty clear. The Northern states wanted to contain slavery; the southern states wanted to keep it. The southern states seceded; Lincoln waged war to save the Union (not to free the slaves).

    1. Kiffi: Probably true. However, I would like to think of it as offerring an alternative understanding of the facts.

      Nevertheless, Emmer has a valid point about placing some limitations on the power of the federal government. Both history and the Constitution suggest that a large and powerful government is an evil to be avoided, not encouraged. The Second Amendment allows the states to have their own militias to avoid the possibility of a federal takeover. Using the Tenth Amendment to place some state restrictions on federal mandates seems pretty tame by comparison.

      I’m not sure from where this unbridled enthusiasm for the power of government to cure society’s ills comes. The oppressed people of Russia and China tried it. Russia’s enthusiasm for the power of government didn’t last long; China’s enthusiasm has been only slightly more successful.

      1. David, leaning toward states’ autonomy, I agree that the federal government needs many and meaningful limitations. I recently watched “Bowling for Columbine” again, and paraphrasing a military contractor, he said that some other governments are evil but not the U.S. Then the film spent several minutes showing video of U.S.-established dictators like Pinochet, the Shah of Iran, Noriega, etc.

        While I fully endorse the need for an accountable and ethical federal government, what Tenthers (thanks Paul) don’t seem to understand is that the states also need many and meaningful limitations. States are not inherently good, and they should not be presumed good when compared to the federal government.

        It’s elementary to point out, but bad people can be elected to state or federal office.

        So I wish that the discussion was not about Federalism. Tweaking the balance of power between states and feds won’t solve any problems. Let’s solve problems instead. I’d start by tightening up loose fiscal policies. I would like corporate welfare to be abolished — if capitalists can’t make their corporations work without taxpayer money, they should move on to another job.

      2. Jerry: There is no way the state can get its budget under control so long as the federal government is creating massive and unsustainable indebtedness. Cities are facing some of the same issues with regard to the state. The loss of local government aid is raising havoc with local budgets.

        Here’s a recent example of the problem of large government. At the Streetscape Committee, we spent some time discussing an application for a federal stimulus grant to build a pedestrian bridge over Highway 3. I think the cost was $3.0 million or so. Had Northfield got the grant that $3.0 million would have been paid by someone. As it is Northfield residents are probably paying for someone else’s bridge. So, at a time when we don’t have money, we are talking about building pedestrian bridges not because it is a good value, but because we can use someone else’s money.

      3. David, I would agree with the argument in your second paragraph if we were talking about almost any other state. But MN is what’s called a “donor state”: we’re one of only 15 or so states that actually send more money to the federal government than we get back. In fact, in 2004 we were only receiving about 69 cents per every dollar we send to Washington (I’ve seen variations in that number, but we’re consistently donating around a quarter or more per dollar). So, it could be said that if we were to have received that stimulus money we would still be spending our own money!

        Doesn’t do anything to help the deficit though…

      4. Phil: I don’t know how we solve the donor/donee problem on the federal level. To a significant degree, we send our representatives and senators to Washington to get back as large of a share of the money as possible. That mentality leads to the Bridges to Nowhere, or in the case of Northfield, the Bridge to the Quarterback.

      5. David, and I wouldn’t want to encourage fiscal bad behavior either. I may disagree with Rep. Kline on almost everything else, but I admire his principled stand against things like earmarks. I just wanted to point out that if we were to start spending federal money like drunken sailors on shore leave it wouldn’t be just “more of the same” behavior for Minnesotans.

      6. Phil: Perhaps one of the issues that the state should consider is how it can receive a greater share of the federal expenditures. It doesn’t help the country but it might help Minnesota. After all, if the feds are spending like drunken sailors shouldn’t Minnesota get its share before it all has to be paid back?

        It seems to me that states are going to have to reassert some authority if Minnesota and other states are going to balance budgets. The Tenth Amendment may be the best hope to containing a runaway federal government.

    1. Scott:

      Tenthers are people with an unusually strong view of the 10th Amendment. I don’t know the source of the term, but have been hearing it for a few months. I think there’s a vague implicit allusion to Birthers and Truthers, other groups with arguably fringe-y views on subjects of the day.

  9. Back to the state budget….we have learned today that the Governor of Minnesota cannot unallot in the manner he did last year. I’ve not read the court findings or ruling to know exactly what they held, but the gist of it seems to be that they ordered the state to reinstate the single medical fund. I don’t know what they may have ordered for the rest of the $2.5 billion in unallotment.

    The question is this: does the legislature plan to let the unallotment actions taken last year stand, if they are allowed to, or do they plan to unravel the unallotment and restore funding to the programs. If they elect to restore funding, then I believe the state has to deal with another $2.5 billion shortfall in the next 11 days—and that is on top of the remaining $700 million they have been trying to deal with for the past 3 months. And then you have to factor in the $400 million that has been factored in already as coming from the federal government. If that money doesn’t arrive in the next 11 days, then the legislature will have to at least create some sort of contingency plan that will kick in if the funds don’t arrive as planned. Bottom line it seems to me the legislature may have worst case scenario of about $3.6 billion shortfall to deal with right now ($2.5B+.7B+.4B) or in the best case the $700 million current shortfall. How are they doing on solving it? Seems like it has been awfully quiet in St.Paul the past few weeks.
    .-= (Ray Cox is a blogger. See a recent post titled Foundation Wall) =-.

    1. Ray,

      Quite right: the State Supremes’ limited ruling on unallotment aside, the first question is what to do, right away, about the state budget. The Supremes, of course, did not rule on this, nor should they have done.

      It could get ugly. The Governor is not individually responsible for state budget woes — there’s plenty of trouble to go around with or without unallotment. But Pawlenty’s imperious—and now-ruled-illegal—action has a lot to do with the indecent haste with which these hard questions will now have to be fought out.

  10. More on the unallotment matter and ruling:

    1. As LoGroNo geeks will remember, we discussed this at length in January; see postings in this thread starting around #408 (page 9) when Patrick brought it to our attention.

    2. I like MinnPost for discussion of state politics (from a moderate-to-liberal perspective, IMO); see

    3. The ruling was 4-3. The majority opinion was written by Chief Justice Magnuson — a Pawlenty appointee.

    4. The Supremes did not find Gov P’s unallotment unconstitutional; they said it violated a particular statute. Two justices in the majority, however, added comments alluding to constitutional concerns.

  11. efairness tax could erase part of the shortfall.

    “A University of Tennessee study projects that total state and local sales and use tax revenue losses from e-commerce sales will likely exceed $204 million in Minnesota in 2010 alone. This figure will grow to $261 million in 2012.”

    seems like an easy solution. this would just be enforcing an existing tax that currently goes unpaid.
    .-= (Jerry Bilek is a blogger. See a recent post titled Gravel Riding) =-.

  12. Phil, David,

    Concerning your postings around 460.1.X, and the issue of “donor” vs “donee” states …

    The most recent authoritative-looking listing I saw in a few minutes of research was from the Tax Foundation

    This suggests that around 2005 Minnesota was getting about $0.72 back on each dollar sent to the Feds. Compare this to New Mexico, Mississippi, and Alaska, each of which got around $2 back on each dollar sent in (no word on Sarah Palin’s view of this wasteful government spending), and to four other states that get even less (e.g., New Jersey, at $0.62).

    A look at the list of donors and donees reveals, not surprisingly, that the donors tend to be wealthier (blue, mainly) and the donees poorer (red, mainly) states. Minnesota, for instance, had at the time of these data per capita income around 109.5% of the national average. So it’s not entirely unreasonable to expect *some* imbalance of payments. Whether $0.72 on the dollar is reasonable is another question.

  13. Paul, it is also very common to see that states with significant military installations be recipients of more federal dollars. Minnesota has typically produced some armaments for the military but that pales in comparison to what a military base generates in revenue. Obviously all states cannot be ‘winners’ in this issue, but one does have to ask if .62 or .72 on a dollar is where it should be.

    1. Ray,

      Quite right about the military bases, etc. Indeed, there are lots of factors that go into these very, very rough calculations. Large and rugged and sparsely settled states like Wyoming and Alaska, for instance, might be expected to get more than the average federal subsidy for roads and bridges — all jokes about Palin’s bridge to nowhere aside.

  14. I was trying to catch up on this issue and watched an hour or so of the MN legislature on TV, senators and congressmen, do nothing but take turns blaming each other for the present situation. OMG. Let each side make one statement of blame and then move on! Why do we tolerate this BS! Why are we paying for people to sit around for an hour and lots more doing nothing productive whatsoever. No meaningful facts were brought to light at all. Get to work! Or let someone who wants to work fill your sorry seat!

  15. Bright, as far as the Minnesota budget problem, I totally agree with you. You can’t even discuss what may or may not happen if there are not budget plans out there. Each party in each legislative body should be required to put forth a balanced budget. At least that way it could generate discussion and hopefully move off square one and arrive at some solution that will work. The way they are going it clearly will not be done in the regular session. Then all we will get is increased rhetoric levels for a bit and probably a special session…more taxpayer expense. On budgets absolutely nothing happens until the final 72 hours.
    .-= (Ray Cox is a blogger. See a recent post titled Donkey Basketball) =-.

  16. One of the big issues our state and federal governments are dealing with right now is the fact that we may have created a government of a size that we cannot sustain. I don’t know if that is true or not, but it is something that deserves to be looked at in an open, honest manner. Here is some interesting information…

    In 1960 Minnesota spent $149 per person running our state. If you adjust that for inflation and population through 2008 it would be $1,084 in 2008 dollars. What Minnesota actualy spent in 2008 per person was $5,144—-or $4,060 more than we would have spent if we were operating at the 1960 pace, plus inflation. Tracking what we spend per person seems like a good way to analyze spending in that it accounts for the needs of a state that gained people during this 48 year period.

    Can we continue to grow govenment at this pace? Some people say we just need to tax our people more. The House and Senate recently passed legislation creating a new, fourth tier of income tax rates for people earning over $250,000 per year that would raise $400 million annually. The Govenor vetoed this and it doesn’t appear that the DFL will try for an override. Is this what Minnesota needs? And if it was signed into law at $400 million, how are we going to deal with the other $2.7 billion shortfall this biennium, and the projected $5-6 billion shortfall next biennium?

    Have we, baby boomer mainly, simply been feeding our government too much for the past 40+ years? If we cannot/will not shrink state government are we going to have enough workers to feed it?
    .-= (Ray Cox is a blogger. See a recent post titled Donkey Basketball) =-.

    1. Ray you seem to have left out the most relevant numbers. When considering how much you can afford (in government or elsewhere) the most important number would seem to be ‘how much money do I have’. You’ve left that out. I think if you look at income in Minnesota since 1960 you’ll see that it has not paced inflation. In fact it has grown much, much faster. I think you’ll find (and feel free to let us know the numbers if you look them up) that if we were to arrange state taxes so that the same percentage of state income went to government as did in 1960 we’d be much closer to a balanced budget.

      What’s more since incomes (and so standards of living) have gone up so much since 1960 it’s perfectly reasonable to assume the ‘average’ Minnesotan would be willing to spend a bit more to get those extra benefits of additional government services (smoother roads, nicer parks, the warm fuzzy feeling that some of your money is going to help those in need, etc..). So ‘average’ Minnesotans can actually afford the current state government and still maintain a higher standard of living than in 1960.

      Of course some of this rings false with a lot of people. They don’t feel better off than folks in the 1960’s. There’s a simple explanation. Most of them likely aren’t that much better off. The biggest change since 1960 is that the distribution of income is radically different than it was then. Income is much less evenly distributed with the richer getting richer. So the average Minnesotan isn’t feeling that much richer. But taxation scheme in the state hasn’t adjusted to compensate for this great redistribution of wealth and now we have a budget problem.

      There’s a simple appeal to just saying ‘we’re spending beyond our means’. People can identify with that. But it’s simply not true. Our means have grown tremendously and our current spending is *not* beyond our means.

    2. Sean is right that our current state and local spending is not beyond our collective means — as a society. Nor is current state and local spending out of line with what it’s been in recent years. Measured as a percentage of personal income in Minnesota, the cost of state and local government here has been quite flat (hovering in the 15-18% range) for about the last 15 years. In 2006 (most recent data in the source I’ll cite below) the figure was 16.3% — a little below the average over the period since 1996.

      For this and a lot more very interesting data, see the PowerPoint presentation Looking to 2030 and Beyond, by state economist Tom Stinson and state demographer Tom Gillaspy. You can download it by Googling on the weird phrase

      minnesota per capita gdp is 8.8%

      and clicking on the first link that appears. Another key message that emerges from these data is that Minnesota’s performance on many key indicators has fallen, in some cases dramatically, in the last 5 or 6 years, especially as regards public investment in future productivity, which the authors see as Minnesota’s best economic strategy for future prosperity.

      None of this is to deny that many individuals feel — and are — seriously burdened by taxes of all sorts. Least of all does it follow that the present tax structure is wise, let alone optimal. But the idea that state and local spending is out of historical whack is objectively false.

    3. Whether state spending is at the appropriate level depends upon the measuring stick. I think the most relevant criteria is whether the state is spending more than it is bringing in. By that criteria, we are either spending too much, not taxing enough, or both.

      Regardless of what we do, we have to accept the reality that our collective standard of living has to be lowered or we will be looking at some of the same issues Greece is facing.

      1. David,

        Yes, of course the state has to raise the money that it spends. Indeed, I believe that Minnesota law requires budgets that are in some sense balanced. Exactly what “balanced” means is, and should be, interpreted somewhat flexibly. Like other states, Minnesota tries to maintain a rainy day fund that can cushion some of the un-plannable imbalances that inevitably occur. At present this fund seems to be tapped out, or close to it, thanks partly to hard economic times and partly to the man-who-would-be-President striving to maintain his anti-tax bona fides.

        In any event, I find the basic arithmetic of in- and out-flow less interesting than the economics, politics, and mathematics involved in deciding how much and what public investment is wise. As you say, we may need to lower our collective standard of living in the interest of sustainability, and I agree that may be painful. Disinvestment in productivity and public goods may ease some people’s pain, for a while, but it will assure a lower collective standard of living in the long run.

  17. What we are doing is chasing people who invest in Minnesota overseas and into states who have a much lower tax rate. That makes for less jobs and less taxes coming into the state. Who doesn’t get that?

    1. I don’t get it.

      Of course there’s some point at which tax rates chase people away, especially if there’s a nice place nearby to be chased to. But it hardly follows that higher taxes are always worse than lower taxes, or that we’ve reached the drive-away point to which you allude.

      On the contrary, Minnesota has been a relatively high-tax (and high service) state for around 40 years, and it has done very well economically, even when compared to neighboring, lower taxed states. The record is there for anyone who wants to look. The clear message is that prudent tax expenditures can help build wealth and prosperity, not just take it away.

      It doesn’t follow, of course, that higher taxes are always better. But the situation is more complicated than your summary suggests.

      1. I didn’t mean to indicate that there is one point at which people will pack up and run. For decades, people have sent their money to offshore accounts, built in other countries, and invested in other countries…hidden money in places like Switzerland, etc, etc.

        Minnesota has done well, I believe, because it has a plethora of natural resources, farm rich soil, mining of ore, taconite, harvesting of wood, and so forth. It’s people are very hardy and have a great work ethic. None of which you can blame on a political party or the tax rate.

  18. Actually Bright, there is indeed a point at which people will “pack up and run” and I know quite a few of them. There is a reason parts of Florida have more people from Minnesta than any other state. When many people retire they are free to pick a state to live in and many, many pick other states due to our tax structure—-(but I bet the climate has something to do with it to).

    But even though we lose a lot of people to other states in this manner, this is not really the big issue that may continue to cause problems for Minnesota. David L is correct when he notes that the state is spending more than it is taking in. That simply cannot continue. And I say we have reached the wall in that it must be structurally addressed in the next biennium. All the money pots have been emptied. All the one time money shifts one can think of have been done. There are no more pennies at the bottom of the jar. We are facing a $5.5 to $7 billion shortfall next biennium. As far as I can tell, we have to make some huge reductions in spending. I’m sure we can also find some modest levels of increases in taxes/fees, but we canot count on much more than what we have.

    Paul raised the price of government issue which is a good one. Right now we seem to be very busily involved in what is called class warfare. We have all sorts of liberal groups spouting off about the ‘rich’ not paying their fair share in taxes. This is of course all theoretical since one one really knows exactly what a ‘rich’ person pays in taxes—sales, income, fuel, liquor, real estate, and on and on— since it is totally impossible to know. They do their best guess extrapolating what the average ‘rich’ person pays and arrive at some number like 9.8% in Minnesota. The same groups then report that ‘poor’ people pay 12%…again by doing extrapolations only.

    The cost of government is actually a pretty good way to look at things. It is all taxes collected….local, state, sales, etc…divided by the income. The state actually does know both those figures. When I was in the legislature we had to take offical action to set the price of government. I don’t know if they do that now or not. But Paul is correct in that it has traditionally been around 16%. It was a bit higher–about 17%— in the ‘fat’ days of the late 1990’s and I seem to remember it was about 15.6% at the end 2004 when belt tightening first started. I don’t know what it is today but it certainly is a fair way to talk about taxes.

    Sean, I would certainly hope that incomes of many people continue to go up and that we continue to create some very wealthy individuals. We tax them hugely. I believe the top 5% of earners in Minnesota pay approximately 60% of the tax burden. What would we do if we didn’t have them to tax? How would you plan to operate this state in the manner we do if we didn’t have these folks paying their huge tax bills? They invest their earnings in starting businesses and providing capital to all types of projects and ideas. We traditionally have had a pretty good track record of people starting some great ideas here and becoming very wealthy. (Dayton’s, 3M, Medronic, Fastenal, etc.) Minnesota needs to do all it can to promote that and help individuals become successful, open factories here and hire other Minnesotan’s. To paraphrase Hubert Humphrey…without them Minnesota would just be a cold Omaha.

    1. Certainly Ray if those 250,000 people and their jobs all magically disappeared one day we’d be in dire straits (especially since it would mean that likely every medium to large size business in the state just disappeared). It’s a fanciful notion.

      I don’t believe raising income tax on the top 5% will result in a mass exodus of jobs from the state. Many (most?) jobs in the state are tied to the state as that it where their business is. If all the construction businesses in Northfield decided to up and move to Reno since the income tax there was lower (does sound a little fanciful doesn’t it) there would still be folks wanting homes remodeled. The market would still be there and new businesses would spring up to serve that need. We’d still collect the income tax, just not from the same individuals.

      Certainly there are those with big bucks who are highly mobile and very sensitive to income tax. But they are not a majority (and most of them are already in Reno). And since their standard of living would arguable be *least* affected by a large tax increase (the difference in quality of life between living on $30k a year and $20k a year is much much larger than the difference between $3 million and $2 million) it could be argued that they are the least likely to leave.

      I also don’t see (in your lovely historical examples of successful Minnesota business) any indication that the folks involved would have fled the state if only income taxes hadn’t been so low. Are we arguing that the thing that keeps Omaha from being Minneapolis is it’s higher state income tax? That argument falls down on all sorts of grounds (like the lower income taxes in NE).

      People choose where to work and live where they do for many complex reasons. I haven’t heard any convincing arguments that the potential to pocket the largest fraction of future income is the top of most people’s list. Until I see evidence to the contrary I have to put such assertions into the same category as claims by billionaires that if we don’t build them new stadiums they’ll take their players and leave and we’ll all be sad.

    2. Sean: Billionaires do move their teams if they don’t get stadiums built. And, stadiums do get built to keep teams (the Twins). Even when the teams can’t move, like the Gophers, public officials still spend hundreds of millions of dollars for teams.

      The rich have more money. But, they didn’t steal it. I’m not entitled to it just because I want something. Neither is the state.

      1. David I’d agree that analogy to billionaire team owners was a bit obtuse. My point was that both were baseless threats. But the reasons are different. The “all the rich people will leave if we raise their taxes” threat is baseless because they won’t actually leave (though if they did it would be bad). The stadium threat is baseless because even if they do (and I agree they might) it’s not clear that the result is actually significantly more painful than the alternative (buying a stadium with public money).

        I certainly agree that the rich (by and large) aren’t that way because they stole the money. But as long as we all agree that it is okay for a community to oblige all it’s members to contribute to common causes (i.e. that we want a government) then the issue isn’t whether we (the people) are entitled to their money. We’ve already agreed that we are. The discussion now is about ‘how much’ of their money is appropriate to take.

        I’d love to see a discussion about what are the right ways (morally? practically?) to decide how much is the right amount to take. But most of the discussion seems to devolve into “taking is bad cause it’s there’s” which pretty much misses the point (remember we’ve already agreed that taking is okay). Or “anything more than the status quo must be bad”. Which doesn’t seem to be a particularly strong intellectual basis for deciding what the right amount is?

        Some perhaps useful starting points might be:
        -how much can people afford (where afford has to do with what impact on their net happiness less money would have)
        -what are the long term effects (for society as a whole) of various types of redistribution.

  19. Ray,

    Yes, people do move around the country, for all sorts of reasons. I moved here myself back in the Pleistocene period, abandoning a warmer, hillier, and (then) much lower-taxed state. All those Minnesota liberal groups were an inducement, too … go figure.

    With reference to “class warfare”, you say:

    We have all sorts of liberal groups spouting off about the ‘rich’ not paying their fair share in taxes. This is of course all theoretical since one one really knows exactly what a ‘rich’ person pays in taxes—sales, income, fuel, liquor, real estate, and on and on— since it is totally impossible to know. They do their best guess extrapolating what the average ‘rich’ person pays and arrive at some number like 9.8% in Minnesota. The same groups then report that ‘poor’ people pay 12%…again by doing extrapolations only.

    If your point is that statistical data involve uncertainty and estimation, so be it. But you haven’t been reluctant to use statistical data yourself. Why is it not OK only for “liberal groups”? Or do I miss your point?

    Here’s one statistic you cite:

    I believe the top 5% of earners in Minnesota pay approximately 60% of the tax burden.

    I don’t know whether this is right or wrong (could you cite a source?), but even if it’s true, it’s hard to interpret without more information. What fraction of total state income does that lucky 5% enjoy, for instance? And does the 60% refer only to income tax, or to all state and local taxes, which (as you remind us) is a pretty good measure? Without knowing such things I can’t tell whether to approve or disapprove.

    1. Here’s the state data:

      Taxpayers in the top decile (incomes of $123,938 and over) bore 38.5 percent of the total tax burden while having 43 percent of total income. By tax type, taxpayers in the top decile paid 56.6 percent of the individual income tax, 29.2 percent of the consumer sales tax, 27.3 percent of the gross homeowner property tax, and 29.2 percent of business

      Source: 2009 Minnesota Tax Incidence Study, page 28

      Here’s some federal data:

      At the federal level, in 2005 taxpayers in the top 10% bore 54.8% of the total federal tax liability (includes income taxes, payroll taxes, corporate income taxes, and Federal excise taxes). Their share of the pre-tax income is 40.9%.

      Source: Congressional Budget Office, Historical Effective Federal Tax
      Rates: 1979 to 2005, Tables 2 and 3.

      1. Phil,
        Thanks for that. I think you’ve found one part of our missing budget gap.

  20. Paul, I’ll do some checking on the top rate payers as to what level they support government. It is hard to keep all the figures between federal and state levels in my head straight.

    In an oppertune opinion piece, Dane Smith just weighed in on what we are discussing here…

    He has s couple of my favorite items listed on his top 11 reasons to increase taxes.
    #10 is my favorite and he does what I just mentioned….extrapolate total taxes paid by rich people. Paul, I don’t have any problem with statistics, as I my very able professors at St.Olaf taught me. They ar fair game for liberals and conservatives. But I want facts to back them up and I have never ever seen a fact backing up this statement about the percentages of total taxes paid by ‘rich’ and ‘poor’. I think it is an impossible task. How does anyone that can track things know what taxes a person pays? You can’t know if they paid a bunch of sales tax in a year. You can’t know how much they drove and paid fuel taxes in a year. If a ‘rich’ person decides to live in a modest house and pay less real estate taxes, is Dane Smith and everyone else on this bandwagon going to chastise them? And on and on. I put this in the urban myth category—if you repeat it long enough people might start to believe it as fact. It has been harped on so long I’ve actually run into some people that have told me Minnesota’s income tax rates are less for ‘rich’ people than for ‘poor’ people….astounding.

    #5 on Dane’s list is very suspect. Over the past years we have raised millions and millions of dollars in new taxes and fees. We increased tobacco taxes to the tune of $200 million a year in 2005. We increase our sales tax many more millions. We increase our fuel taxes by over $300 million a year. Dane seems to forget about these.

    #4 is also a question for me. I’d like to see which year Dane can point to where school funding decreased in the state. It has not happened. We have held to very close to zero but never decreased.

    #8 might be interesting to know who pays for the work by these economists. Dane cites the 2020 think tank which is run by Matt Entenza, a very liberal DFL candidate for governor. These are not unbiased organizations.

    I like Dane Smith and I understand his frustration with the fact that liberals have not been able to enact out huge ‘tax the rich’ plans. But a more sensible approach would be to carefully outline what exactly you want Minnesota to spend per capita—there is your price of government surfacing again—-and then tell us how you want to get there.
    .-= (Ray Cox is a blogger. See a recent post titled Whole House Remodel) =-.

  21. Paul, I think one of the best sources for tax information is the Minnesota Taxpayers Association (not the League). It is a decades old organization that has true credibility and does thorough reports on all sorts of things.
    A great report is

    If you take a look at the graphs and charts you can see that Minnesota is low in some spending (pubic safety) and very high in other spending. We also get compared to the nation which is very useful. You can see that on a per capita basis Minnesota is 133% above US average in income taxes, 105% above corporate income taxes, 107% above in sales taxes and a whopping 143% above on excise taxes. I will state again that I do not object to being at these rates because I believe we operate a great state. But another chart shows that we spend heads and tails above other states in welfare. We should work to create a state that doesn’t have to do that. we should be training our children well and create job opportunites so they can be gainfully employed and taking care of their own needs, not relying on the government for personal care.

    Bottom line is I think the Taxpayers Association does a fine job evaluating the ins and outs of tax collections, state spending and a host of other things.
    .-= (Ray Cox is a blogger. See a recent post titled Whole House Remodel) =-.

    1. Ray,

      These are indeed interesting data; thanks for pointing to them.

      As you observe, there are areas in which Minnesota taxes are relatively high (e.g., public welfare) and others (e.g., pubLic(!) safety) where our taxes are relatively low. A couple of comments:

      1. It’s no surprise, and not always obviously good or bad, that states vary in the levels at which they fund different purposes. The most meaningful comparisons among states are, IMO, aggregated measures, like total state and local spending, whether in absolute terms or as a fraction of total income. On these measures (see pp. 36 and 37 of the Taxpayers Association document you referenced) Minnesota falls very close to the middle of US states — just above average in absolute spending per person, and a little below average in spending as a percentage of income. (We look better on the latter scale because Minnesota income is higher than average among US states.)

      2. You cite “welfare” as an area in which Minnesota considerably outspends the national average. The Taxpayers Association document refers to “public welfare”. I didn’t immediately find a definition of “public welfare”, but I suspect it covers a lot of things not traditionally thought of as “welfare”. Is “public welfare” standard jargon in state government? If so, do you know what it includes?

      Bottom line: I see no evidence in these numbers of the incipient “class warfare” you’ve warned against. On the contrary, Minnesota seems solidly average among US states in taxing and spending — while having been well above average for many years in quality of life and general prosperity.

      Excellent results at bargain prices — what’s not to like about that?

  22. Sean, you are right many, many jobs in the state do not leave or start because of taxes. The vast majority of those jobs, like my own in the construction industry, are service sector jobs. We provide services to the people that are here. We are not going to move operations because we cannot, as your example points out. But does that mean the state should just take a systematic approach to extracting more and more taxes from those that remain?

    It also does not address the bigger issue that is related to manufacturing jobs. Those truly are mobile and over the years we have watched thousands of those jobs leave Minnesota as sales reach out to an ever increasing global market. The US worked very hard to develop global markets for products. Now that we have done it we find that we need to compete in those very same markets. If total tax burdens get too far out of line the Minnesota businesses will have a difficult time remaining competitive. We’ve had examples of this over the years, such as Marvin Windows. We’ve also had examples where programs like JOBZ allowed companies, such as Polaris, to build new plants in Minnesota.

    Paul, you and I agree on the Taxpayers Association data…Minnesota is probably not over taxed right now. That has been my position all along. We tax ourselves to provide the state we want and seem to be doing a pretty good job. However, I cannot say that moving taxes greatly upwards right now is a very bright thing to do.

    There is an opinion piece in the Mpls Star this morning lifted from the Washington Post that talks about taxes in Minnesota. They are giving the green light to Governor Pawlenty’s veto of a $1 billion tax increase on the ‘rich’ ($123,000/year) and note that it isn’t the time to be raising taxes. In the same paper we see reports of a looming veto of a pension bill fix that appears to have decent bipartisan support. I don’t think we can ignore the pension problem much longer. Pension underfunding in the US is going to make a big bang very shortly.

    1. Ray,

      You refer to

      … an opinion piece in the Mpls Star this morning lifted from the Washington Post that talks about taxes in Minnesota. They are giving the green light to Governor Pawlenty’s veto of a $1 billion tax increase on the ‘rich’ ($123,000/year) and note that it isn’t the time to be raising taxes.

      I didn’t find anything from the (liberal) Washington Post, but there is an op-ed from (Rupert Murdoch’s) Wall St Journal. Granted, op-eds aren’t famous for logical rigor, but this WSJ piece could have been written by a flack for T-Paw, or even Tom Emmer. It’s not too scrupulous with facts, either, asserting, for instance, that DFL budgets would point Minnesota toward Scandinavian tax rates. New Jersey and Maryland are among states cited as Taxes-are-Bad examples to scare the children—never mind that, according to Taxpayers Association data, these two states are in the top 10% of all states in after-state-and-local-tax income.

      Taxes don’t necessarily produce prosperity, but they don’t have to kill it, either.

    2. Paul: The good thing about T-Paw’s veto of tax increases is that is forcing the discussion of taxing/spending now, rather than later. If we continue to raise taxes, the day will come when raising taxes will have a negative revenue effect even for the government.

      The pension issue that Ray raises is a good example of how revenue/spending issues can be delayed too long. Almost all private enterprise has moved away from defined benefit plans. Yet, public enterprise has been extremely successful in maintaining plans that private enterprise has found to be cost-ineffective.

      If we want to see if people really support a tax increase, we should raise taxes on the people who are receiving the benefits. So, if public employees want to keep their defined benefit plans, we should consider removing funding from the state. This would put public employers on the same playing field as private employers.

      Here is another example I saw recently. The Tax Court had their funding cut. An official was quoted as saying that the only solution was for them to take unpaid leave to deal with the problem. That isn’t the only solution. If they were in private industry, they would either work the same amount for less or someone would have to get laid off.

      Less government spending doesn’t have to mean less government services.

  23. The tax proposal that the governor is vetoing would make a 15% dent in our budget deficit. It sounds like a good start, and if they wanted to drop the threshold a bit, Felicity and I would be happy to pay our share to maintain essential public programs in this state.

    As it is, it looks like – based on the numbers Phil cites above – even with this proposed increase, the top 10% would still be paying a lower final MN tax rate than the rest of us.

    1. Patrick: With a $5.0 billion dollar deficit and about 5 million people in Minnesota, may I suggest that you and Felicity at least pay your $1000 fair share?

      1. David: Does that mean that Minnesota corporations, that enjoy the benefits of (limited) legal personhood and considerable gov’t subsidies, pay nothing for their fair share? Might religious institutions, that pay no taxes, be asked to pay their fair share?

        To me it seems rather unfriendly to the average taxpayer to ignore other entities that, on average, take more from the state than the average taxpayer.

      2. David,
        Actually, my proportionate share would be higher than that, as I am an above-average earner. While I do think that tax increases are only part of a budget solution (and, as Jerry points out, that individual citizens are not the only source of tax revenue to be considered), yes I will willingly pay my share without complaint.

      3. Patrick: I think taxing entities have to do a better job of matching up the sources of revenue with the expenditures of revenue.

        For example, on the local level we tax businesses at a much higher property tax rate. This isn’t based upon the level of services they use; it is based upon an ability to generate more revenue. On the other hand, we have a system of water, sewage, and garbage that is based upon the amount that you use.

        Which system is more fair? I bet 100% of businesses and 90% of the public prefer the second system. In the long run, the second system is cheaper even for the less well off.

      4. David,

        Re 475.2 … I’m all in favor of discussing taxes and spending now, not later. But T-Paw’s one trick act—vetoing everything on the revenue side—doesn’t strike me as a good thing, or remotely conducive to the “discussion” you and I agree is needed. (Actually, the Guv tried another trick, unallotment. If this, too, was supposed to promote “discussion” it didn’t exactly work out, on account of being illegal. Oops!)

        Re 476.1 … maybe I’m obtuse, and your question was directed to another poster. But I just don’t get your point: were you suggesting that people who advocate tax increases are themselves unwilling to pony up? Or what?

      5. Paul: I wouldn’t give Pawlenty too much power in this process. The veto power is a very limited power. It is the power to disapprove of legislation enacted by a majority of less than two-thirds of the legislators.

        With regard to the comment about ponying up – There probably are a significant number of people willing to pony up their “fair share”. But, I doubt there are many who are going to voluntarily send it in.

      6. Re veto power … you’re right that the Governor isn’t an absolute monarch; it takes 1/3 to tango. In the current climate, unfortunately, there are too many tango partners just waiting to be asked.

        Re “voluntarily” sending it in … Indeed, not everybody would do so. I support a tax increase myself, for instance, but if no such thing is enacted I might reasonably conclude that any contribution I could make would do more good at, say, the Union Gospel Mission.

        In any event, are you suggesting that people who think like me are somehow hypocritical about tax increases? Non sequitur, IMO.

      7. Paul: I’m not suggesting that it is hypocritical. I’m suggesting that “I support a tax increase” needs to be examined for the depth of the support. The fact that you (or I) are more willing to send our “tax increase” to the Union Gospel Mission speaks for itself. I think the general feeling is that giving money to the government just wasting money while giving money to the Union Gospel Mission will accomplish something.

        The thing I like about Pawlenty’s “no new taxes” pledge is that it forces some discipline upon the law making body – the Legislature.

      8. David,

        You say:

        The fact that you (or I) are more willing to send our “tax increase” to the Union Gospel Mission speaks for itself. I think the general feeling is that giving money to the government just wasting money while giving money to the Union Gospel Mission will accomplish something.


        My support of the Union Gospel Mission does not imply that I share the “general feeling” you mention. I don’t share it — and I wonder if you really believe yourself that the government simply wastes money. Or are you dramatizing the case for rhetorical effect?

        I’d like to see our society — at large — do more than it does to make decent provisions for the poor. (And for the non-poor, but that’s another subject.) In practice the Union Gospel Mission and its ilk do admirable work in this area, and probably always will. In my idea of a better world UGM-like organizations would complement, not replace, the efforts of society at large. Meanwhile, there’s no logical contradiction in supporting both.

      9. Paul: I don’t have so much faith in government that I am willing to support a tax increase without asking questions. The main question is, “To pay for what?”

        Government can be really good at providing some services or products; other services or products, government is really poor at making good value judgments.

  24. Patrick, you say “the top 10% would still be paying a lower final MN tax rate than the rest of us.” I’m not sure where you place the rest of us, but I am not one in the top 10% so I can respond: it is impossible that the highest 10% earners pay a lower final MN tax rate than me. We have a very progressive tax system in MN. The higher earners pay a higher rate. Period.

    Paul, I was wrong—shouldn’t trust this 58 year old memory—it was the WSJ that ran the opinion piece ‘Democrats always want higher taxes’.

    David L thanks for pointing out the issue with tax courts. That is the kind of thinking that will indeed sink this wonderful country….if big public labor forcing the taxpayers to retain defined benefit pension plans doesn’t do it first.
    .-= (Ray Cox is a blogger. See a recent post titled Whole House Remodel) =-.

  25. Patrick, most of the comments on taxes, tax rates and porportions paid can be skewed a bit by what all is included. There are many ways to look at taxes and who pays them. Phil notes in his posting that the top 10% of federal taxpayers pay 54.8 percent of taxes. I’ve seen this figure listed a bit higher, around 58%-60% but I’ll be quite content agreeing that our top 10% income earners pay 55% of federal taxes.
    The tax incidence report that Phil cites notes the top 10% income earners in Minnesota pay 38.5% of all taxes collected. Other reports, such as the Taxpayers Association report I referenced, show slightly higher percentages for this group of taxpayers. I’m pretty sure the rates hover around 40% for most tax years.

    1. Ray,

      I agree that 38.5% is pretty close to 40%; both appear to be reasonable estimates for the proportion of taxes paid by the top 10% of income earners.

      To put this in perspective, however, one needs also to know what fraction of income this top 10% of earners rake in. According to figures Phil cites in 472.1, this figure is 43%. These numbers imply that income of the top 10% is effectively taxed at a lower rate than the overall rate in the state. Granted, there are different calculations one might do to calculate “rates”, but these data seem at odds with your assertions in #477.

    2. Ray,

      Given that the top 10%ile pulled in 43% of total income, the fact that they only paid 38.5% of the state tax burden sounds like a pretty good deal for them, which has been subsidized by (relatively) higher tax impositions on the rest of us.

  26. Paul, I’m sure there are some states that don’t have progressively higher income taxes as your income increases (some have no income tax) but Minnesota certainly is not one of them. Our income tax system has been such that the more you earn the more you pay for decades. I don’t have significant problems with such a plan and it does seem to work well as evidenced by the rate collections mentioned in earlier postings. But no tax system that I know of is a pure percentage rate—-they all have adjustments, etc that end up creating an adjusted gross income that you pay taxes on.

    Patrick, I’m not sure what the pretty good deal you reference is. The top earners control a significant amount of wealth and pay a significant amount of taxes. MN could not exist as we do without having quite a few of them around.

    I think what the real question for posters is “what percentage of overall revenue should the top 10% earners pay?” We see that it is about 38-40% now. Is that about right, not enough, or too much? If it is not enough what rate is enough, and if it is too much, what rate is more preferable…and where do we get additional revenue to offset what we give up by lowering the top rates?
    .-= (Ray Cox is a blogger. See a recent post titled Laser Grading) =-.

  27. What I don’t see counted here is all the investor/big business types that don’t even consider Minnesota for a place to build anew due to the higher tax rates. From what I have seen and heard thru my personal experience is that people do view it from the bottom line perspective and don’t care about anything else but the bottom line numbers…taxes being a big part of the initial decision.

  28. Back to ideas for balancing the budget (long and short term):

    Reduce the number of state employees by 5% through attrition and/or a hiring freeze.

    Eliminate defined benefit pension programs for new state employees, any existing employees under the age of 40, and any employees with less than 10 years of service. Make actuarially determined lump sum (and continuing matching) payments to self directed, tax deferred, savings accounts to compensate for the loss of the pension benefit.

    An emergency reduction in every existing state spending allocation by 1%. (If a program is budgeted for 100 million dollars it will only actually be allowed to draw 99 million.)

    Eliminate funding for new, revenue negative, programs that have not been started. (If we got along without it so far, we can probably get along without it until the budget is balanced).

    A 10% surcharge on all income tax payments until the budget is balanced.

    A 1% increase in the sales tax rate until the budget is balanced.

    Increase every state fee/service charge by 5% until the budget is balanced.

    1. William,

      Thanks for making suggestions that have numbers attached. As for the specific numbers you cite … I wonder how specifically you mean them.

      For instance, you mention a 10% income tax surcharge, a 1% addition to the sales tax (that’s about a 15% increase in the tax itself), and a 5% surcharge on fees and service charges. Is there some reason you chose these particular numbers (10%, 1%, 5%) rather than some others (9%, 2%, 6%), for instance? I’m not arguing for or against any of these choices — just wondering whether they’re chosen to add up in some way to solve a problem of a particular size.

      In any case, I think these are useful, constructive suggestions. For that very reason our Governor would adamantly oppose most of them, and I fear the Republicans are too hopped up on “tea” to do what needs to be done.

      1. Paul…No particular reason other than the increases (and decreases) did not seem particularly onerous. Really just a way of thinking about the possibilities…rather than a hard and fast percentage. I’m of the opinion that we all have to participate in the pain of getting the balanced budget as quickly as possible, and then trying to keep it balanced, at least under most circumstances.

  29. All sound ideas William. Minnesota has used most of them in the past. We’ve had income tax surcharges. We presently have fee surcharges on many fees. Our sales tax is always raised by a ‘temporary’ measure. Other than the income tax surcharge most of these temporary measures are all permanent. They are ways to increase revenue. Doing this feeds more monety into the government system. The end result is that the government system continues to grow and requires additonal ‘food’ in a few years.

    I think we really need to work on answers to what is the amount that is needed to operate a state properly. How much money does the U need? How much money does our E-12 need? How much money does our transportation system need? The legislature is actually a rather poor arena to discuss and debate those issues. It is however a decent arena for deciding how to fund those costs.
    .-= (Ray Cox is a blogger. See a recent post titled More Laser Work) =-.

    1. Ray,

      Perhaps I’m dense, but I don’t follow you first paragraph. Are you saying that sales tax increases can’t be temporary? Why? And is an income tax surcharge, temporary or permanent, *not* a “way to increase revenue”?

      I agree that we need to think about how much we can afford in operating our state (let’s keep in mind, too, the costs of underfunding public goods) and about how to allocate resources among competing goods. The legislature may have its problems as a venue for such discussion, but what alternatives would you suggest? Plebiscites? Blue-ribbon panels?

  30. You can discuss numbers and the way to look at them for eternity and not get the budget balanced.

    The budget should be balanced without adding revenue ‘until the budget is balanced’ because that is code for ‘until forever’.

    Costs should be cut across the board, evenly. Let the private sector deal with life issues as they can and will. We have turned into a culture of babies who need mama gov and papa gov take care of our families, our addictions, our education, our housing, food and diapers. Let’s cut the budget by taking responsibility for our own lives and each other.

  31. Paul, I don’t think you are dense, but I may not have made myself clear. Sales taxes can be temporary….they just never are. They typically are increased as a ‘temporary’ measure and then made permanent. That is ususally done by repealing the date that it is set to expire. The most recent sales tax increase plan by Senator Tom Bakk called for it to change once Minnesota had reached some new level of reserves. While that is interesting, the people in charge of spending would most likely not let the reserves trigger the event.

    An income tax surcharge is in fact probably the best way to raise temporary revenue. It doesn’t require a complete redesign of either our tax code or our tax forms. You simply add a new bottom line that directs the taxpayer to multiply by a set figure. This has been done in the past and usually does expire.

    We also have current surcharges on all sorts of fees and fines. I pay a state surcharge on every building permit I purchase. If you get stopped for a seatbelt violation, the $25 fine turns into a $118 payment when the surcharges are added in. As you note, these are all just ways of obtaining additional revenue without attending to some underlying issue. (Example, legislators wouldn’t want to raise the seatbelt voilation fine to $100 as they would get pounded by the voters for doing so)

    But Bright raises the more important issue in this discussion….are we going to recognize how much revenue we actually are taking in and run the state with that amount of revenue? Or are we going to say that it is impossible to run Minnesota on the revenue we are taking in and we have to increase taxes…either across the board (surcharge in income taxes) or in specific areas (sales tax, fees, etc.) And if you line up with the plan that more revenue is needed, what is your plan in 3-4 years when all that new revenue is gobbled up by the state machine and you need more revenue. Are you on a sustainable path or an unstainable path?

    I noticed that Arizona recently put a 1% sales tax increase ($1 billion) on the ballot. The voters there approved the measure, which I believe will allow Arizona to balance their state budget. That may be a way to look at substantial revenue inceases. Minneosta did that in each of the past elections with a MVST tax dedication and an increase in sales taxes for conservation work.

    The big issue as I see it is that Minnesota, and several other states, cannot reign in their spending adequately when the economy turns down. I will admit we have not had such a severe downturn in the past few decades, but that does not excuse legislators from dealing with the budget in a meaningful manner. When you still have county boards, school boards and city councils handing out employee raises, refusing to cut non-essential staff, refusing to reorganize departments, etc you are seeing ‘ostrich management’ hard at work—stick your head in the sand and pretend the problem isn’t there. We have budget trouble in Minnesota and in every county and city here. It takes tough action just like it takes tough action for a small business to weather this economy and stay solvent. But it has to be done.
    .-= (Ray Cox is a blogger. See a recent post titled More Laser Work) =-.

  32. Ray,

    Thanks for explaining your view of the sales-tax-rise dynamic. Whatever the history to date, I see no reason why an increase (or decrease, for that matter) to any tax couldn’t be temporary, or why temporary-ness should be harder to arrange for a sales tax than for any other.

    In any event, I’d support an income tax surcharge as a temporary measure. But relying on the income tax entirely to address a broad revenue problem seems skewed. I’d rather “surtax” a broader array of activity, including sales, at a lower rate than pile on disproportionately to the income tax.

    Better yet, but maybe impossible in the short run, would be to adjust rates and fees and charges across the board in an intentional way, and thus avoid or minimize the awkwardness and gimmickry of surcharges and sur-surcharges. In India, for instance, the surcharge system has gotten completely out of hand. A nominally $100 airline ticket there can rise to $300 after the fuel surcharge, airport tax, seat tax, luxury tax, and (my favorite) the “dearness allowance” all kick in.

    Minnesota will indeed have to “[rein] in … spending … when the economy turns down.” We will also need to look seriously at raising more revenue — as you’ve recommended. Our present Governor will allow no such reality-based thinking. It would be a calamity his successor was as bad.

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