4/24/2007 9:16:00 AM OPINION: Citizens can weigh in on Minnesota budget choices
By Laura Kalambokidis, University of MN Extension
How should Minnesota spend its budget surplus? Should the state increase local government aid, provide property tax relief or rebate some taxes? Which spending priorities are most important?
Minnesota Public Radio's "Budget Balancer" (www.mpr.org/budgetbalancer) provides everyone with Internet access the chance to answer these questions. Warning: Making these choices can be both thought provoking and humbling. Still, I encourage you to give it a shot.
Before you dig in, you might consider some criteria that matter when it comes to taxes and spending: fairness, simplicity, impact on the economy, and effects on your goals for Minnesota.
o Fairness: Fairness is a subjective matter. For some, fairness means everyone is treated the same.
Those who believe in progressive taxes believe that fairness happens when taxes are paid by those most able to pay. Still others believe that taxes are fair when those who benefit the most from government services also pay the most.
o Simplicity and transparency: Simple tax systems reduce the amount of money we spend administering the system and getting people to comply. A transparent tax system ensures that taxpayers are aware of their contribution to the government.
Be careful, though. The simplest tax system of all is one where every individual pays a uniform, fixed amount. While transparent and simple, many would say such a tax is not fair. Getting rid of the provisions that complicate the system is never easy, because each provision is (or once was) justified by some policy goal.
For example, eliminating the tax deduction for charitable contributions would simplify the tax system, but losing the deduction might erode financial support for charities.
o Impact on the economy: Economic theory holds that it is best for economic growth when individuals and businesses make choices on the economic merits of their alternatives, rather than the tax consequences. A truly neutral tax policy treats different types of income, spending and investment the same so that taxes don't influence individuals' choices.
However, tax incentives are often created in order to achieve social or economic goals, such as increased investment in equipment and education. Tensions arise between trying to reduce the influence of taxes on individual and firm behavior, and trying to induce behavior changes (such as increased investment in Minnesota) that further our goals.
o Effect on goals: Tax policy and government spending are two tools the governor and the legislature can use to further their policy goals. What are your goals for the State of Minnesota? More home ownership? More charitable giving? An improved environment? A superior educational system? A state-of-the-art transportation system? Keeping government revenue stable? Making Minnesota an inviting place to conduct business?
Before you start making choices, you might list three primary goals that trump others, in your view. This could make tough choices easier.
While these four principles might clarify your choices, the choices are still difficult. Evaluating tax and spending proposals is complicated by tensions among policy principles and the goals that we're trying to achieve. Simple tax structures aren't necessarily fair, and taxes that address social goals can distort economic decisions.
Moreover, because we have to balance the state's budget, increasing spending on one priority will limit our options for spending increases elsewhere or for tax cuts. To make choices, we must weigh policy principles and our own goals according to our values.
To learn more about University of Minnesota Extension's public finance education programs, visit www.extension.umn.edu/publicfinance/.
