State Representative David Bly, MN District 25B

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 they’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.”© 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 –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.