Opinion: Minnesota among few states not raising revenues
Tuesday, September 08, 2009 5:10 AM
By Dane Smith
President of Growth & Justice
Among the 20 states with the worst budget crises, Minnesota appears to be standing almost alone in failing to raise state tax revenues to address its historic budget shortfall.
Minnesotans have been told frequently by Gov. Tim Pawlenty that it would be wrong and unusual - if not just plain crazy - to raise tax revenues in the midst of a recession, even on those high-income households that are most able to afford it.
But a recent report from the Center on Budget and Policy Priorities documents that it's not unusual at all for states to raise tax revenue, especially when running disastrously short of tax revenue.
Almost two-thirds of the states have either already raised taxes since Jan. 1, or are still considering that alternative, according to the national research group's report.
Minnesota's dubious distinction becomes even more distinct when one compares that report with a study from earlier this year by the National Conference of State Legislators, which ranked the severity of the state budget crises.
Minnesota's problem was ranked 10th worst, with a shortfall amounting to about 15 percent of the state's total general fund.
As of now, of those 20 states with the worst budget problems, only Louisiana, Georgia and Minnesota have failed to raise revenues to meet their budget-balancing obligation. (Louisiana, in particular, is hardly a role model for good governance, and it also happens to be the home of Gov. Bobby Jindal, another anti-tax conservative who may be seeking the White House.)
From another perspective, 85 percent of the states with the most severe revenue shortages have adopted or are still considering revenue increases.
Pawlenty often has drawn attention to Minnesota's reputation as a high-tax state and has said that he wants the state to become more average on that score. He's also said he doesn't expect Minnesota actually to become a small-government, low-tax state like Mississippi.
Deep South states historically have poor quality-of-life indicators and poor public services, and low taxes. They've also typically underperformed Minnesota on basic indicators of economic health.
But Minnesota appears to be headed in a southerly direction. And with Pawlenty this summer determined to unallot some $2.7 billion more in public investment in education, transportation and health care for the elderly and poor, we might be a low-tax, low-public investment state very soon.
The anti-tax policies got a foothold in Minnesota more than 10 years ago, when under Gov. Jesse Ventura some of the nation's largest state income and local property tax cuts were enacted. This occurred during a roaring economy and huge surpluses.
Cuts in the income tax were especially significant, and that windfall primarily benefited high-income households. Then, when the 2001 recession took hold, after Gov. Pawlenty and many legislators had signed "no-new-taxes" pledges, Minnesota embarked on a cuts-and-shifts budget-balancing strategy.
As a result, Minnesota fell from its typical Top 10 rankings on taxes and spending to an unprecedented 19th place in state-local taxes as a percentage of income. In total state-local expenditure as a percentage of income, Minnesota fell to 30th place.
Pawlenty's assertion that raising taxes in a recession is somehow unacceptable and outside the norm is not only false now, it's been false for a long time.
As the Center for Budget and Policy Priorities report notes, 44 out of 50 states raised taxes in the early 1990s recession, when Republican Gov. Arne Carlson agreed to a sales tax increase. In the recession that began in 2001, 30 states raised tax revenues. In the early 1980s recession, many states, and Minnesota under the leadership of Republican Gov. Al Quie, raised taxes with a temporary surcharge on the income tax.
In fact, we don't have to take the word of the Center on Budget and Policy Priorities, a progressive organization, on the need for states to raise tax revenue to get through a worsening budget crisis.
Ray Scheppach is the executive director of the National Governors Association and a highly respected leader of the nonpartisan association of all the state's governors, for which Pawlenty has served in leadership roles.
Scheppach had this to say recently, "In this past year, governors have worked hard to balance the budget by cutting spending first, while protecting services like Medicaid and education. Unfortunately because of a steep decline in state revenues, they cannot rely on cuts alone; states must find new revenue sources for fiscal 2010."
Many reputable economists also have been weighing in on this subject, arguing that raising revenues, especially on higher incomes, is much less damaging to the economy and results in less job loss than a cuts-only strategy.
Growth & Justice issued a policy brief (www.growthandjustice.org/sites/2d9abd3a-10a9-47bf-ba1a-fe315d55be04/uploads/FourthTier.pdf) in May, co-authored by University of St. Thomas economist emerita Marsha Blumenthal, that showed only modest job loss from income tax increases, while noting that job losses from deep cuts could be larger.
And 120 economists in New York recently issued a letter to Gov. David Paterson, stating that "raising taxes during a downturn - particularly taxes that affect only higher-income families - is generally better for a state's economy, and better for its citizens, than sharp budget cuts.
Georgia and Louisiana are warm and friendly states with lots of nice people and some redeeming qualities. But Minnesota needs to rejoin the progressive-moderate mainstream - and we don't need to emulate the anti-government, anti-tax fiscal profile of the Deep South.
Dane Smith, president of the progressive-leaning St. Paul-based think-tank Growth & Justice, enjoyed a 30-year career as a writer for the Star Tribune and Pioneer Press, where he delved into state, local and federal government and politics.