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Archive for December, 2004

So how do we pay for what we want?

Dec 12, 2004 News

Rep. Cox offers some opinions and observations in his recent blog, but I wish he would cite his sources as I am not sure where he gets some of these notions. Such as:

The state has seen increases in the number of jobs and also increases in tax collections, including substantial increases on corporate income tax collections.

This is clearly trending the right direction . . . when people are working they pay taxes. And working people also place a lesser demand on state programs and services. Putting people to work is a real ‘budget fixer’ and is the best program for the people.

We do have several possible revenue sources to consider. I talked about these during my campaign this fall. There are two revenue items that are set to expire in 2005 . . . additional taxes on rental cars and liquor in the metro area. I believe the majority of this revenue comes from people visiting Minnesota.

Where are all these promised jobs? I do remember Ray talking about sin taxes and a gas tax, as he is now, but no other options. These are inadequate, because sin taxes would bring in a very modest revenue. Gas tax would be appropriated toward road construction and repair, although there may be a different allocation scheme. Where’s the revenue in these proposals to adequately fund the schools? I don’t see it.

Oh, that’s right, I forgot that Ray liked the idea of a state run casino and trying to get money from the Indians. But as my campaign manager who lives in Red Wing says, “The Treasure Island casino is the largest employer in Red Wing, more than the top two Northfield employers combined, and theyâ€™ve essentially eliminated the welfare rolls in the area. Put them out of business and then what?”

See the JOBZ site:

Then there are those jobs perhaps they are like those jobs created for the immigrant work force of which, Mitch Perlstein says in a recent StarTrib article, immigrants are necessary for workers in our economy, and in the next breath, “but they take advantage of expensive social programs when our taxpayers are struggling.” Let’s see, they are needed as workers but paid so low they qualify for “expensive social programs.”

Ray goes on to say:

What I promise my constituents is an honest evaluation of all revenue proposals and honest work at preparing our state budget, bearing in mind we cannot ignore the ‘tails’ of any budget. And I will continue to do all I can to see that Minnesota remains a favorable place for business and job growth.

Translation of all of the notions above. Keep wages low. Reduce state spending. Shift income taxes away from businesses and corporations and on to the backs of working people. Shift property taxes from Commercial/Industrial to Residential, again, from income generating property to wage earners. Regressive taxation. How about a little more honesty about what things cost and who pays for them. We want good schools but don’t want to pay for them. We want good roads but don’t have the money. We want to improve public transportation of all forms buy can’t pay for it.

We are continually told by Republicans that we have a bad business climate because we are a high tax state but last October the following Star Tribune article caught my eye, maybe you saw it too.

Overtaxed Look at fees, local taxes too. Published October 16, 2004.

But when politicians claim that Minnesota state taxes rank second or third in the nation, a look at what is being compared is in order. This state lands in that upper echelon only if one disregards local taxes, which in Minnesota and most other states are tied to state taxing and spending. Comparatively high state taxes often go hand in hand with low local taxes. Minnesota ranked third among the states in fiscal 2002 in state tax burden, but 33rd in local taxes.

Further, one must not ignore government revenue derived from fees (which the late President Ronald Reagan famously said should be spelled t-a-x). Minnesota assesses fewer of them than most states do.

Minnesota has chosen for good reason to finance government with more reliance on taxes than fees, and on the ability-to-pay-based income tax than exclusively on regressive sales and property taxes. Those choices have the virtue of spreading Minnesota’s total state-and-local tax burden nearly evenly among people at every income level (with a notable exception for those with the highest incomes, who pay a lower share). Residents of only a few other states have as much assurance that they are paying a fair share.

The usual tax ranking comparisons also make no allowance for state-by-state variation in personal income levels. That’s a serious omission, since government necessarily costs more in states where average incomes run high. A Minnesota school district cannot hire, or keep, a teacher at Mississippi wages.

The Minnesota Budget Project, an initiative of the state Council of Non-Profits does it differently they take account of the many factors when making comparisons, and on that basis and using numbers from fiscal 2002, the most recent year available, the Budget Project came up with this result: Minnesota ranks 26th among the states. What’s more, that ranking has been plummeting fast. It was ninth in 1992 and 18th in 2000.

Those rankings explain something that has long mystified many Minnesotans: How is it that Minnesota can have such obvious needs for more government spending on transportation and education, yet be such a high-tax state? The answer is that the needs are real; it’s the big-take reputation that’s inflated.

Consider the latest U.S. Census data comparing per-pupil K-12 education spending by the states. Minnesota ranked 20th in 2001-02. That middling position does not square with this state’s big-spending reputation, and does not serve Minnesota’s aspiration to be a knowledge-economy leader.”Â© Copyright 2004 Star Tribune. All rights reserved

‘Growth and Justice‘ is a working group organized by Joel Kramer that I’ve become acquainted with. They’ve been meeting over the past several years to come up with solutions to our state’s budget difficulties. This is how they analyze the problem:

Hanging over all discussions of taxes is the pressure of regional and now global competition for capital and jobs.

For example, there has been intense pressure to reduce the individual income tax â€“so that people with money to invest or with the skills to earn high salaries will come to your region and stay. And when the need arises later to raise more money, the tendency is to rely on other revenue sources, all of which fall more heavily on lower-income groups.

Minnesota has participated in this trend of lowering individual income tax rates. So far, we’ve done so without making the tax system more regressive, but if you look at the whole revenue system, taxes plus fees, the picture is different. Fees are growing far faster than tax collections, and fees hit harder on lower and middle-income groups than at the top — and the people at the top were already not paying their proportional share of the state’s revenues. The system is likely to get more regressive in the future. Minnesota business groups are starting to talk about raising new revenues for transportation, for example, and all their choices will hit the poor and middle-class harder than the high earners.

Meanwhile, income of the wealthiest Minnesotans is growing faster than ever, while the average income of working people is stagnant – hundreds of thousands of households do not earn enough to support a family on a basic-needs budget.

At the same time, Minnesota, like other states, is making a steady stream of deals with businesses to reduce or eliminate their tax burden if they’ll promise to expand or retain jobs in certain locations. This is a process that the academic evidence generally doesn’t support, and it makes business leaders nervous because it unlevels the playing field, discriminating against other firms that contribute to Minnesota’s success and have to compete with those receiving the incentives.

It doesn’t have to happen that way. Minnesota can structure its revenue-gathering to simultaneously strengthen the state’s economy AND ensure that the burden of financing the state’s government services are more equally shared.

We simply need to learn from the evidence of what works, challenge some sacred assumptions of both liberals and the business community, and strike a new bargain in which both sides gain.

Minnesota’s business taxes are characterized by high rates, imposed on a narrow base. For example, our corporate income tax rate is 9.8%, one of the top 5 in the country. Our sales tax rate is 6.5%, also one of the top five in the country. This creates the impression that Minnesota places a heavy tax burden on business, and contributes to the Tax Foundation’s ranking of Minnesota’s business tax climate as 48th in the nation.
But in fact, Minnesota does not place a high overall tax burden on business. The Ernst & Young study of business taxation shows that businesses pay only 38% of Minnesota’s state and local taxes, well below the national average of 43%. Minnesota ranks 35th in business taxes as a percentage of private economic activity.”

I’ve blogged before about the ideas of Elmer L. Andersen, and he may well have been right in his assessment that businesses don’t mind higher taxes when they see and receive the benefit of the services. But he lived in a different time, and the pressures on business and communities have changed. ‘Growth and Justice’ again has some suggestions, not all of which I agree with. They would propose a business flat tax, to reduce the regressive effects of a business tax because they pass on most taxes, and would equalize the tax rates across classes by adding an increase in the income tax rate for the top 5% of income earners, not just wage, but all forms of income. Further, they suggest a broadening of the sales tax but a reduction in the rate, which makes me uncomfortable because it would include essential goods that the poorest of the poor must have, and which can not be and finally they add,

How could we raise more revenue in the future? Obviously, raising the revenue in a way that further moves us toward at least proportionality is best, from G&J’s perspective. But the reality is that it will be politically easier to raise regressive taxes, such as the taxes on gas, tobacco and alcohol. And raising these taxes is attractive from a policy perspective because they will reduce behaviors that drain society’s resources. For example, the Minnesota Medical Association reports that a $1 tax increase could reduce Minnesota teen smoking by more than 18 percent and save the state related health care costs associated with long term tobacco use.

If regressive taxes are a simple and strategically desirable way to generate revenue, how can we offset the regressivity problem?

Growth & Justice asks. And they propose this solution: Offset a portion of any regressive tax (or fee) increase with an increase in the new Household Credit. This will soften the impact of the tax or fee increase on households, based on their income and size, phasing out for families of four or more that earn more than $48,000 a year.

Our state faces serious problems that will profoundly affect our future and the future we create for our children. They deserve more than gimmicks hollow promises and opinions and solutions based on simple ways of raising taxes – this is not going to be easy. It is time we listened to those who have seriously studied these issues and acted on their advice.

‘Heavy Weather’ – Where’s the silver lining in the coming session?

Dec 7, 2004 Education, News

The election is long over, and yet Speaker Sviggum and Rep. Cox are intent on continuing their personal attacks toward the DFL and my campaign. Ray in a recent blog claims I didn’t send out flyers. Is it distraction from their inaction? Is it avoidance of the issues, or a distraction from his own indiscretions? I don’t know. For the record, his complaints against my campaign are baseless, my postage, printing, and other campaign expense information is all a matter of public record, and despite their diversions, I will continue to focus on the issues that they don’t want to talk about, the real issues that face Minnesota.

Throughout the campaign, Rep. Cox claimed, along with his fellow Republicans, that our state was just fine economically, but the state and local news is full of the challenges we face. Although they characterize my position as ‘negative’ and saying “the sky is falling,” unfortunately, headlines show that I am correct. We face a large budget deficit, as a state it’s $1.4 billion, as I was predicting, and the Northfield School District faces a nearly $700,000 shortfall. Ignoring this reality, and using more shell game financing shifts, will not ‘solve’ the problem. There are no more multi-billion dollar tobacco funds to raid, and it’s immoral to think we can renege on our agreements and extort $350 million from tribal casinos, a figure which equals all of the state corporate tax revenue (and as any business owner should know, a deal’s a deal, and you can’t just unilaterally change the terms of a contract.). It’s even worse to think we can start by taxing regular citizens and then publicly blame it on the Indians for not bowing to Republican demands.

Republicans are practicing their own brand of wealth distribution, transferring the tax burden from corporations, passive income, and income taxes of the wealthiest of Minnesotans to middle and lower income wage earners. They are transferring property taxes from income generating commercial and industrial property to residential classes. They are lowering and working to eliminate utility personal property taxes that benefit local governments. The trend? Shift taxation from income producing activities to the backs of working Minnesotans. I’ve said often that we start to solve our state budget and revenue crisis through closing the corporate tax loopholes, an initiative that Rep. Cox voted against. We need to reverse the shift of taxation to wage earners and back to corporate revenue generators.

This is a “take-home test.” Rep. Cox and Speaker Sviggum have some time before the session starts to develop and promote plans so they can hit the ground running, generate public support, and get something done this session.

The Minneapolis StarTribune’s Money&Business Section begins with a Headline “Tough Economic Choices Ahead” and the Northfield News Headlines two stories on the near bankruptcy of the Northfield Schools. And on the national level things are as bad, if not worse:

To the victors go the toils.

George W. Bush may wonder why he wanted a second term if he listens to prominent Minnesota economists about the hard work that lies ahead.

Paying public obligations to retirees, managing trade and federal budget deficits and curbing the rise in health care costs top the list of problems demanding solutions, according to the Star Tribune Board of Economists.

Conservative think tanks, such as the Cato Institute and the Heritage Foundation, lately have joined more liberal organizations, such as the Economic Policy Institute and Brookings Institution, in sounding alarms about budget deficits and other looming economic problems.

Bill Melton, president of Melton Research in Edina, and other economists noted that the presidential election campaign rarely touched on the topics they consider most important for the economy.

“The thing that is striking to me is that I see all these economists that agree that policy is just dysfunctional and there is no political reflection of that,” Melton said.

The trillions of dollars in public retirement benefits promised to retirees in the decades ahead represent a serious economic issue for the Bush administration and Congress, in the view of every economist on the Star Tribune panel.

“That’s a serious economic problem because we’ve overcommitted, overpromised, what we’ll give to U.S. citizens,” said Art Rolnick, director of research at the Federal Reserve Bank of Minneapolis. “What we’ve promised people is much more than we’ll be willing to tax future generations.”

Congress will end up increasing the age at which retirees can collect Social Security, reduce benefits for high-income Americans or reduce benefits for everyone — or some combination of the three, Rolnick said.

Time and again, Republicans like Ray promise to deliver on health care, education and transportation and refuse to talk about how to pay for it. As one editor puts it:

Legislative state budget debate to be lively
December 05, 2004
By Don Davis
Capitol Reporter

ST. PAUL – Gov. Tim Pawlenty doesn’t release his proposed budget for a month and half, but we already have some clues to what will happen at the Legislature next year.

For one thing, there will not be an income tax increase. No surprise here; Pawlenty and many Republicans signed a pledge not to raise taxes.

Another certainty is more programs will be cut.

And there is no doubt budget discussions in the legislative session starting Jan. 4 will be just as contentious as ones that ended in a stalemate earlier this year. The difference is that in 2005 the Legislature must pass a budget for the two years beginning July 1.

“We face a cold winter and a very difficult budget situation” is the way House Minority Leader Matt Entenza, DFL-St. Paul, put it. He may be understating the problem.

Here is how things will shake out:

Not much will happen the first month of the legislative session, other than the Senate pushing its public works bill. Sen. Keith Langseth, DFL-Glyndon, wants that bill to pass the full Senate by the end of January. As chairman of the Capital Investment Committee, he probably will get his way.

Look for the bonding bill to be plump so legislators can show voters they are bringing home the pork.

And then I open my Sunday paper to read:

Many Minnesota tax bills are bringing a spiky surprise
Anthony Lonetree, Star Tribune

A year after the average state homeowner found 2004 tax increases were generally less than expected, taxes are poised for a sharper rise in 2005, leading to some surprised reactions to the proposed tax bills sent to all state property owners last month.

The state Department of Revenue is estimating about an 8.5 percent average increase for existing homes statewide, up from a 6.5 percent increase projected earlier this year by the Minnesota House Research Department.

A Star Tribune survey of metro-area communities of more than 5,000 people shows that Anoka County is expected to be home to many double-digit percentage increases.

Double-digit increases are plentiful, as well, for median-valued homes in pockets of Washington and Dakota counties. But the volatility of various factors in the tax equation — rising property values, local government spending increases or shifts in tax burden from one property class to another, or all of the above — means double-digit pain can be felt almost anywhere

Or,

As politicians fiddle, schools do slow burn

Nick Coleman
Star Tribune
Published December 5, 2004

YOUR SCHOOLS ARE BURNING!

We have reached a four-alarm crisis in the education of this state’s children, and the people who should be responding to the fire — the governor, the Legislature, local political leaders — are shirking their duty.

No, they are doing worse than shirking. They are wrecking an education system that made Minnesota a leader.

Last Tuesday, after announcing another massive state deficit, Gov. Tim Pawlenty continued to cling to his no-new-taxes pledge he made to the Tax Evaders League (they call themselves the Taxpayers League) like a pilot clutching the stick on a plane whose wings have been shot off. Some had hoped that after two years as governor Pawlenty might have become big enough to say he won’t stand idly by while the schools go down.

Nope. He is standing by. Idly.

The school raiders who want to move public education dollars away from “government schools” to privately run schools are grinning.

These articles show the direction we’re headed in and ‘concerned’ does not begin to express the trepidation I feel. I long for a time when we had a governor like Rudy Perpich, who once said that as much time as he spent thinking about improving, trade, the business climate and the institutions that make our state great, he never went to sleep at night without thinking about the child in Minnesota who went to sleep at night hungry. He knew about it, because he had once been hungry too.

Now is the time for legislative leadership, for strong advocacy and promotion of solutions. As noted in the Northfield News, it requires a legislative solution. Will District 25B get that leadership? I’m not sure where Ray stands on the issues, even after that long campaign, and I don’t hear him advocating solutions. His December blog, after the District announcement offers nothing. What will he do to assure the schools are adequately funded? Will we be represented by the Ray who Lori Sturdevant, of the Minneapolis StarTribune, said told her that he will vote to override a Pawlenty veto of a tax increase? Or are we represented by the Ray who was given an 83% positive approval rating from the Taxpayer’s League, even though he never took the pledge, a higher rating than some who took the pledge? Is it the Ray who says the state and the legislature should ‘do something’ about the deep financial trouble schools face, yet has no proposals? This would be an opportune time for an independent minded “Elmer Anderson” moderate to find common ground and propose a funding increase to invest in our community and future. Because Ray has not stated his positions and principles, we don’t have any idea what he plans. But now is the time to reach across the aisle and work with others, which Ray says he can and will do. It’s time for action.

Wendell Phillips, the famous abolitionist of the last century, once said, “Two kinds of men generally best succeed in political life; men of no principle, but of great talent; and men of no talent, but of one principle – that of obedience to their superiors.”

What is clear is that with a $1.4 billion deficit, schools, cities and many others are calling for more funds, and tough decisions will have to be made. We have a governor who initiates one study after another, but as of yet has produced little action or acceptance of solutions offered, as with his Health Care Task Force. The administration instead prefers to pass on the problem to counties, cities and townships or proposes we take money from the Indians. That is abdication of responsibility.

This is a time that calls for courage, and Ray and the Speaker could exercise some by setting aside their gripes, deflective nonsense and divisive tactics and propose some solutions to the problems we face. They must be willing to talk about taxes and who they think should bear the real cost of government. Who? Working people? How? Flat tax? 2% solution? Reform the tax code? If it is their position, they need to say honestly that even though Minnesota is one of the economically highest performing states, we need to cut back and not have such high expectations. They need to look for ways to appeal to Democrats who share their ideas. Maybe we want a slower life style, a return to a simpler way of life. Maybe education standards shouldn’t be so high. Maybe we shouldn’t try to educate everyone. Not everyone needs to be in the middle class. Ray has said that not everyone needs to own a home, maybe not everyone needs to own a car. We could even let the poor ‘choose’ dormitory living, as they must in other economically depressed countries, after the universities close and the dorms are vacant. Or on the other hand, we could find ways to make life better and simpler. Or perhaps make real recommendations about how to change schools, health care and long term care so that it won’t cost so much. Or they could argue for the notion that we should have an aristocracy of the rich and the poorer classes. How can we compromise unless we know what you really want, where you’re headed?

I will keep watching and encouraging a bi-partisan effort. These problems will not go away until they are faced. With our national economy facing a serious challenge from the Chinese, and the threat of oil prices continuing to climb as is the price of coal transportation, things are not likely to get better if we just wait and hope — inaction will only make it worse. We need to enact an energy agenda focused on energy independence, that won’t ruin the environment or put people at risk; and we need a plan for education and health care that will not completely destroy our schools and our ability to be an economic power. These are big challenges and we need to be spending our time talking about them and taking action, not just taking pot shots at the opposition about nonsense.

Questions to ask our legislators:

Do you believe in privatization of most services that the government is involved in? This greatly concerns me because I see Republican policies moving in that direction. I believe privatization is not in the public interest because it would have a profoundly negative effect on our democracy and on our commitments to provide opportunity to all. Not only in schools, but in health care as well.

Should our health insurance solutions be aimed only at those who can afford health care?

Do you believe teachers are paid too much money? Do you believe nurses are paid too much money? How does nursing pay compare with teacher pay?

How should teachers be compensated?

Should we shut down all public schools and their sport facilities and give each parent a flat amount based on what we think it costs to educate a child and let parents fend for themselves and try to buy educational services on the open market? How would that provide a result any less disastrous than our market health care system?

Should there be public investment in transportation? How and how much? Where does that funding come from?

Should there be continued public subsidization of some types of energy? Should there be investment in other types of energy? For each sector, how and how much?

Should state government provide aid to citizens and local governments?

Do you believe in government oversight and regulation? What caused regulation of certain industries and sectors?

Do you believe that public investments should come from all citizens, all levels and types of income and all forms of businesses or should it come from wage income only?

Do you believe goods and services should go only to those who can afford them? How should essential services, such as water, electricity, gas for heating be priced and delivered?

Do you believe wages should be kept low enough to encourage workers to leave work and become self-employed by starting their own businesses? What subsidies should the state give to small, medium and large business owners?

Do you believe that investment in the stock market will make everyone self-sufficient?

How much has your family lost in the stock market in the recent economic downturn?

Who gains from “privatization of social security” and investment of that money in the stock market, other than those companies in which people invest? Given the recent economic downturn, who would lose through “privatization of social security?” Who will cover the social security retirees who now have no funds of their own?

Do you believe businesses and corporations are bound by a social contract to act in the public interest, or are they only beholden to their stockholders?

Do you believe the economy should only benefit those who prove to be able to make a profit? If businesses fail, should those at the helm receive “golden parachutes?”

Do you believe government has a role to play in creating and encouraging opportunity for citizens? If yes, how should it be paid for?

Do you believe government should play a role in turning the trend in outsourcing jobs?

Speaking of land disputes and Indians, has there ever been a time when the rights of residents prevailed over developers?

Our state faces serious problems that will be with us for the long term. We can either ignore thehttp://www.blogger.com/img/gl.link.gifm and leave an uncertain legacy to our children and grandchildren or we can work to solve our own problems. I’m ready to hear proposals for solutions rather than complaints about what happened or didn’t happen in the last election. What about you?