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A better and fairer way to deal with the state’s budget crisis

Date Published: 03/20/2003

Author: Joel Kramer


Gov. Tim Pawlenty has said the debate about raising taxes is over. On the contrary, it seems that at the Legislature it has never begun, and it should.

And maybe, just maybe, it can be something besides a Republicans vs. Democrats debate.

The board of my new think tank, Growth & Justice -- a mix of Republicans, Independents, and Democrats -- believes that the state's budget crisis imperils Minnesota's ability to generate economic prosperity, to ensure that families meet basic needs, to provide economic opportunity to our young people and to conserve our natural resources.

For that reason, we propose $1 billion a year in new state taxes, which would cut the budget gap by more than 40 percent.

Why $1 billion?

First, $1 billion would mean that combined state and local public spending as a percentage of Minnesotans' income would remain near historical lows -- but wouldn't drop precipitously in one year as it does in the governor's budget.

Secondly, $1 billion in new spending would return the state to a budget gap about the size it was when candidate Pawlenty was saying he could close it without new taxes, and the people elected him governor to do that.

Third, $1 billion of tax increases, coming after an estimated $2.5 billion a year of tax cuts enacted over the past five years, would be a way for our divided state to unify around a point of view on taxes: They were too high, and they needed to be cut, but in the midst of an unprecedented economic boom we cut them too much.

While a declining price of government can be desirable, it should be achieved through steady improvement in efficiency and effectiveness, not dramatic tax-cutting followed by sharp, painful cost-cutting that transfers costs to other levels of government and punctures the safety net.

The $1 billion a year should be raised through state taxes, because the alternatives -- such as increases in local property taxes and steep tuition increases -- have serious negative effects on economic fairness and opportunity.

In considering the mix of tax increases to raise $1 billion a year, the Legislature should ensure that the incidence of all state/local taxes becomes more proportional at the higher income levels, where taxpayers now pay less than their proportional share. Is it really such a controversial goal for each income group to pay a proportional share of their income in all state and local taxes? We think not. Raising the top bracket of the income tax would be one possible way to achieve this goal.

The mix of other tax increases should promote such goals as increasing the stability of government's revenues, having desirable health or environmental effects, and not falling heavily on workers struggling to support their families at a basic-needs level.

For the cutting that would still be needed (and the amount depends on a host of decisions about reserves, endowments, etc.), three kinds of cuts should be softened or abandoned: (1) those that simply transfer the burden to a different level of government (such as local government aids and funding for higher education); (2) those that will cause perverse effects (such as driving low-income people to use emergency rooms because they've lost their health coverage); and (3) cuts in programs with a high return on investment, such as training people for higher-wage jobs or helping low-income students to succeed in school.

Obviously, proposing $1 billion a year of new state taxes is not politically popular. But reducing snowplowing, laying off police officers, raising tuition 15 percent, and leaving poor people without health care are not politically popular, either. What's needed is bipartisan leadership to develop and then sell to the people of Minnesota an honest solution -- one that stabilizes combined state/local government spending as a percentage of income and ensures that the burden of paying for that spending is shared fairly and wisely.

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