ST. PAUL LEGAL LEDGER CAPITOL REPORT
Legendary playwright and poet Oscar Wilde famously scoffed at cynics who seemed to know “the price of everything, and the value of nothing.” And that critique might apply to those who focus too much on the net revenue increases in Gov. Mark Dayton’s tax-and-budget plan unveiled this week, and not enough on the enormous value of the public investments for which those taxes pay.
Long-term asset-building in the Dayton budget — including major increases for improving early childhood education, for workforce readiness, for building out a 21st century transportation system, and moving toward more affordable and universal health care—are all investments that make perfect business sense.
Minnesota business leaders since statehood, including Dayton’s ancestors, have understood that people would want to live and do business in a cold place only if it were a civilized place, and that taxes are the price we pay for a civilized society (according to another fine thinker, U.S. Supreme Court Justice Oliver Wendell Holmes). And often those places in our nation and world with lower taxes and less democracy tend to be less civilized, less healthy, less educated and more plagued by inequality.
But even if we look only at the tax side, the bottom-line Price of Government (an official state measure of state-local revenue as a percent of personal income) will remain reasonable for Minnesota under the Dayton plan. Projected revenues under the plan would rise less than one percentage point, on a net revenue increase of about $2 billion a year over a denominator of total projected personal income of about $270 billion annually in 2015.
All through the 1990s, a period of mostly robust business growth when Minnesota state government was led by Republican Gov. Arne Carlson, total state-local revenues tended to hover around 17 percent of our total personal income. Deep and unsustainable state income tax cuts under Gov. Jesse Ventura, combined with cuts, spending shifts and a no-new-taxes austerity under Gov. Tim Pawlenty during two recessions, have reduced the Price of Government to a projected 15 percent by 2015. The net tax increases projected under the Dayton proposal likely would keep the Price of Government around 16 percent, hardly a picture of runaway government growth.
Beyond issues of bottom-line price and investment value, the long overdue and sweeping tax overhaul in the Dayton plan finally addresses the worrisome trends in Minnesota toward regressivity and obsolescence of the state’s tax system.
Over the past decade, the Minnesota Tax Incidence Study has chronicled a steady shift in the state’s total tax obligation, with ever lower percentages paid by those at the very top and a larger share being paid by those in the middle and lower ranks. Currently, those in the top 1 percent pay an effective tax rate (counting all state-local taxes) of less than 10 percent, while those in the middle pay about 12 percent. Dayton’s proposed increase for those in the very top income brackets should help arrest that growing regressivity, at a time when all evidence shows those at the top acquiring a larger and larger share of income and wealth —amassing a greater percentage of the total than at any time since the 1920s.
The fact that our state tax system fits inadequately with the 21st century economy — with many services going inexplicably untaxed at a time when consumer and business services are rapidly growing as economic sectors — has been a concern for decades. A report by Gov. Pawlenty’s business-led tax study group was one of many that called for sales tax broadening and higher “sin” taxes as part of a revenue-neutral overhaul. Proposals to lower the overall sales tax rate — but to broaden the base to include currently tax-free services, goods and internet sales — makes good sense. And some elements of that idea are already supported by some of the state’s largest corporations.
There also are some cuts to various programs in the Dayton budget, giving credence to administration claims that it is a balanced approach. But the plan is even more balanced when one considers the historical big picture. From that longer-range perspective, we must remember that for more than a decade our state budget crises, driven in part by private-sector decline and failure, were fixed with public-sector cuts and disinvestment and borrowing and accounting gimmicks. Unacceptable increases in tuition and local property taxes have resulted from these actions, and the Dayton proposals address both of those issues that significantly and adversely affect middle-class Minnesotans.
No doubt there are flaws and political difficulties in the Dayton fiscal plan. Even with friendly DFL majorities in the House and Senate, the plan represents the biggest overhaul in decades and a historic shift back toward Minnesota’s traditional values on public investment. This will be, in policy shorthand, a heavy lift, and many interest groups will be lined up to oppose this piece or that piece. If too many supporting pieces are removed, however, the package falls apart.
As a whole, it’s worth preserving. Dayton’s fiscal plan recognizes that Minnesota’s prosperity rests not only on progressive and innovative business leadership, but also on a foundation of smart public investments — in high-quality public education and workforce training, physical infrastructure, economic security for the elderly and disadvantaged, public health, and natural resource protection. We cannot continue to neglect and cut the price, without considering the value, of these good works of our better-than-average state and local governments.
Let’s accept that we are unlikely at the end of the 2013 session to see a perfect tax-and-budget outcome that accommodates every interest group and every lofty goal by our business, government, conservative, liberal, religious, labor and nonprofit communities.
As President Obama said in his second inaugural address this week, “Progress does not compel us to settle centuries-long debate about the role of government for all time, but it does require us to act in our time.… We must act, knowing that our work will be imperfect.”
A version of this column originally appeared in the St. Paul Legal Ledger Capitol Report on Thursday, January 24, 2013.