MN shortfalls: We can’t go on like this

Think of Minnesota as suffering from a vitamin deficiency, growing weaker and unhealthy, and still resisting a balanced diet. And think of taxes as spinach, broccoli and peas, not exactly everybody’s first choice on the buffet table, but the stuff we need to reinvigorate our state.

One month from legislative adjournment, all indications are that election-year pressures will deny Minnesota the state revenue “vegetables” and the responsible, long-term budget solutions it needs.

Time is running out in the face of projected chronic shortfalls — as much as $1.7 billion in the red a year from now — and so are the accounting gimmicks and the reserves. So voters choosing leaders this fall for 2009 and beyond need to ask them to face up to a glaring fiscal reality: We can’t go on like this. Our experiment with tax cuts and short-changing vital public-sector investment is not working.

More than a decade of tax rebates and tax cuts during good times, and the no-new-(state)-taxes straitjacket of the last six years, have left our communities and our economy in worse shape than they have been in decades. (The 2008 Legislature deserves credit for overriding a veto and pushing through a modest gas-tax increase, but that’s a dedicated tax that only begins to address two decades of deterioration in our transportation infrastructure.)

Diminished standing, real pain
Cumulative cuts to our public schools, transportation and other public works, early childhood programs, job training, higher education and health care have diminished Minnesota’s standing in the nation and caused real pain to all but the most affluent of our citizens. And their enterprises are beginning to suffer, too.

That’s because this disinvestment has been accomplished by a gradual slide into economic mediocrity in the private sector. The scrimping and corner-cutting, the idea that draining our common pool of resources will benefit everybody, is most assuredly NOT producing the general prosperity that was promised when tax cuts were enacted. For the first time in decades, Minnesota’s key economic indicators— on job growth, long-term unemployment and average income— are trending toward or below the national average.

Minnesota’s distinctive place as a high-quality place to live was achieved through innovation and private enterprise, to be sure. But it also came through investment in human capital, education at the forefront, but also in essentials ranging from public-works infrastructure to caring for the elderly and poor, and amenities such as park systems and libraries.

Respected nonpartisan state experts such as State Economist Tom Stinson and Federal Reserve Senior Vice-President Art Rolnick have pinpointed investment, particularly in education, as a crucial ingredient for Minnesota’s past success and as a strategy for recovery. And by the way, every living former governor of Minnesota has expressed public disapproval in some way of the cuts-only course for achieving fiscal balance.

High-income earners benefited most
The notions that revenue sources are nowhere to be found and that the state is tapped out are simply not true. A welter of statistics show that Minnesota’s overall effective tax rate is down significantly from a decade ago, that high-income earners benefited the most from deep income-tax cuts, and that the same top-enders have a greater share of wealth and income than at any time in recent history. The bottom-line effective tax rate for those at the top is considerably smaller than for those in the middle, and this disparity is projected to worsen.

Moreover, prestigious national experts have made the case for protecting states’ public-sector investment and targeting tax increases to those who can most afford it.

Nobel Prize-winning economist Joseph Stiglitz and Congressional Budget Office Director Peter Orzsag wrote recently that if the goal during a recession is to keep money flowing in the economy, protecting state spending is a pretty sure bet. And they argue that a better option is to raise taxes, particularly on higher-income households. They conclude that “reductions in government spending on goods and services, or reductions in transfer payments to lower-income families, are likely to be more damaging to the economy in the short-run than tax increases focused on higher-income families.”

We can begin addressing our revenue problem by reversing the income-tax reductions that were afforded to those at the top earlier in the decade. We can consider reforming the sales taxes to reflect the reality that we have a service economy. We can look more broadly for ways to expand revenues progressively, so that those at the top at least pay a more equal percentage.

As citizens, we need to make room for elected leaders to do what many of them know to be right for Minnesota. We need to declare the “no new taxes” strategy (that’s state taxes, see your tuition or property tax bill) a failure.

We need to invest smartly in education, job training, transportation and human capital. To do this we need to think again, as the generation before us did, as well-rounded citizens willing to invest in and nourish the common good.

Marcia Avner is public policy director of the Minnesota Council of Nonprofits; Brian Rusche is executive director of the Joint Religious Legislative Coalition; Dane Smith is president of the Growth & Justice think tank; and Ray Waldron is president of the Minnesota AFL-CIO. They have combined efforts to form the Invest in Minnesota Campaign.