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Minnesota's in the hands of the DFL — so what's next?

Tom Bakk victory speech
Photo by Bill Kelley
Voters handed control of the state of Minnesota to the DFL last week.

We are now in the hands of the DFL and the federal government will continue to influence if not dominate major state policies. What does this mean for Minnesota’s economic health?

Kim Crockett
Kim Crockett

The health of the business economy — from garage start-ups to Fortune 500s — determines the wealth of our citizens. It also determines the size of the economic pie that the state can tax to pay for the state’s core functions (like schools, infrastructure and courts) and all the other “good things” (like green roofs, bike shares and trails). If the pie shrinks, core functions get short-changed and good things should be off the table. (They stay on the table and core functions get short-changed, but that is another story for another day.) So liberals and conservatives alike should be interested in growing the economy.

What can we expect in 2013? Even though the GOP got trounced, can we look to free-market solutions to help Minnesota achieve the kind of growth we need to get back to a broad prosperity?

Health care: This is now largely driven by federal policy and in Minnesota, the feds have a willing partner in what could be a complete loss of state control. All states have to tell the federal government by Nov. 16 whether they are building a health care exchange or not. Gov. Mark Dayton is already on board the Obamacare Express, having accepted  and spent millions for an exchange. The GOP Legislature slowed him down, but that impediment is now gone.

What does this mean for you? For people who already have coverage, we can expect health-care premiums to keep rising. Average premiums have already gone up and are projected to increase more as the “Affordable” Care Act is further implemented. You cannot add coverage for millions of new people (adult children and the uninsured) along with “free” mandates (well-care, contraceptives) without raising costs. Then you have to pay for the bureaucracy here and in D.C. Even if your employer gets stuck with the bill, you are going to pay it in lower wages or the loss of benefits. That means that employers will be looking to get out of offering health insurance by shifting their work force to part-time status (already happening in many industries) or over to public exchanges so employees can buy their own policy.

The cure for health care was and still is a shift to a patient-centered, market-based system that rewards quality through competition for patient controlled, portable dollars — not a federal takeover. That policy prescription, however, stands little chance of success in light of the election.

Taxes: Dayton proposed a $2 billion tax increase to the GOP Legislature in 2011 by moving the top income tax rate from 7.85 to 10.96 percent (plus 3 percent on top of that for the highest earners). He also wanted a new statewide tax on higher-valued homes, and an increase in the corporate tax rate.  Dayton also vetoed two tax bills last session, both of which contained modest reforms (but by no means an overhaul to address perennial problems with our revenues).

According to the Tax Foundation, Minnesota already has the 7th highest state-local tax burden at 10.8 percent. We also have the honor of being one of the few states that uses all the major categories of taxes: property, sales, individual and corporate.

Dayton has again promised to “tax the rich.” Even if “the rich” do not all flee the state, capital and investments certainly will seek a better deal elsewhere and have already done so (the governor’s wealth is reportedly in South Dakota trusts, where tax laws are more favorable). So we can expect the economic pie to shrink even further if the governor is successful.

We urge the DFL and Gov. Dayton to instead overhaul taxation to address unpredictable revenues that make it tough to budget and make the state less competitive for good private-sector jobs. We recommend the 21st Century Tax Reform report as a good starting point for discussions (eliminate the corporate tax, for example, both because incomes are volatile and the tax just gets passed on to consumers).

Energy/environmental policy: Like health care, federal tax subsidies and agencies like the Environmental Protection Agency (EPA) drive state policy and the price of energy and development. Minnesota also has a tough “Renewable Energy Standard” or “RES” that forces utilities to meet certain “green energy” and related conservation goals. In short, these increase energy prices for consumers without clear benefits to the environment. In fact, the RES and other conservation goals may be counterproductive (because utilities have to “cycle”  traditional sources of power like coal to  back up unreliable wind and solar). The natural gas boom has interrupted energy markets for the good, and we are waiting to see how that will shake out.

We recommend that the Legislature study the impact of the RES on energy rates with a view toward at least revising if not repealing the RES, along with state subsidies for “green” industries and restrictions on coal and other sources of energy. Instead, while recognizing that utilities are heavily regulated, the state should allow the market to function (subject to reasonable environmental controls) so that consumers gets reliable and affordable energy. Again, just like corporate taxes, energy prices get passed on to consumers in the form of lower wages or higher prices.

Sustainable government:  The state reports that as of January of 2012, the pension system was short by about $19 billion. The reality may be more than that — a lot more. According to the American Enterprise Institute and other national studies, the figure is closer to $60 billion. If you use the state’s number and recent Census data, this means that each Minnesota household would have to pay $9,108 to get the state retirement system to full funding (or $3,555 per capita). 

Existing pensions are pretty much non-negotiable, so reform will have to focus on new and existing employees. Defined contribution accounts (like a 401k) will have to be introduced — and the sooner the better. Whatever happens, public unions will have to get on board. Reform may get a needed boost later this fall when Moody’s recalculates unfunded liabilities assuming a much lower rate of return (5.5 percent vs. 8 percent) amortized over a much shorter time frame (17 instead of 30 years). That means municipal bond rates will be adjusted in light of pension promises, so we are likely to see greater interest in reform from counties and cities next session. That should carry weight with legislators of all stripes.

To sum up, we expect to see an expansion in the reach and cost of a state government that is already overextended and transferring yesterday’s costs to the next generation of taxpayers. Perhaps the DFL will surprise even themselves and “own” the state’s budgetary and tax revenue problems, using their extraordinary power to pass needed reforms that move the state toward fiscal health and sustainable growth fueled by private enterprise rather than public spending.

We urge the newly elected Legislature to unleash the transformative power of a free marketplace rather than trying to control our economy from D.C. and St. Paul. Then we can return to prosperity and start fighting about how or whether to fund “good things” again rather than how to pay off debt.

Kim Crockett, J.D., is the chief operating officer and general counsel of the Center of the American Experiment, whose mission is  building a culture of prosperity in Minnesota and the nation.

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Comments (12)

And then the pigs will fly

Yes, and climate change is liberal fantasy, and Romney was going to win by a landslide, and terrorists are taking over the state department, and all we have to do is cut taxes and wait for the magic to happen. I see Ms. Crockett has provided another concise example of Republican fantasy pretending to be analysis and prediction, and I'm sorry I wasted my time reading it. Unfortunately I didn't know who Ms. Crocket was before I read it. Well, you live and you learn.

The only "experiment" Ms. Crocket's organization seems to be interested in is finding out how irrelevant their activities can be while still attracting attention. It is a curious phenomena.

You'll learn!

Two paragraphs in I was getting suspicious, so I scrolled down to read the author bio. Wow! No surprise there!

Still - I suppose it helps keep down the occasional criticism that MinnPost is just a forum for "the liberal echo chamber" . . . . . .

Oh yeah

The "free marketplace" has done such a good job once we deregulated so much of it. Here's the deal, money and the free marketplace have no conscience or morals. Period. That's what regulations are for. They do not self-regulate.

The free marketplace was skyrocketing insurance costs and "Obamacare" won't make the costs go down, but it certainly can make them slow down. Of course, one must wonder what a single-payer system could have done. Health care is expensive. What is sad is that you will find the most innovation in the world in the US, yet with all that innovation, we have not managed to provide better medical outcomes. Why? Access. Other first world countries don't necessarily create better drugs, better procedures, or better devices. They just provide better access to the basic stuff. Believing that a better quality of life can and should be traded for a little cash is reprehensible. Trying to convince others of the nobility of the dollar is greater than life with dignity is worse.

Everything has its time and place--government spending and regulation; private enterprise and profit. They're not mutually exclusive, and are dangerous individually. Of course, Ms. Crockett, you and others like you know that. Again, one must wonder--if you knew that, why in the world would you advocate one without the other? I know one thing: making the claim that we're passing down the costs to our children is disingenuous, at best. Probably an outright manipulation. (It's so obvious with the "reasonable regulation" claims. You do know that, at the very least, our children will need an inhabitable earth, right?)

Don't worry, Ms. Crockett. You'll survive the Democrats. Even though it might irk you to find that others will, too. Maybe even for the better.

Lies

Please don't insult our intelligence when you talk about the Affordable Care Act. If Minnesota doesn't build its own exchange, the Federal government will do so itself. Governor Dayton has gotten the ball rolling on creating a Minnesota exchange so that there will NOT be a Federal take-over occurring in this state, while Minnesota Republicans obstructed that effort in the hopes that a Republican president and Congress would be elected and repeal the requirement. If either party was moving us closer to a Federal takeover of healthcare, it was the GOP.

You say you want a "patient-centered, market-based system that rewards quality through competition for patient controlled, portable dollars." This is exactly what the exchange being implemented under the Affordable Care Act does! The exchange by design provides consumer services for selecting health insurance. For the first time, consumers will be able to compare insurers side-by-side using the same criteria. How is this anything other than a "patient-centered, market-based system that rewards quality through competition for patient controlled, portable dollars?" All the government is doing is parsing information and presenting it. If you want to say more people are going to be on Medicaid, that'd be true, but those people aren't forced to NOT buy insurance, and it's overwhelmingly patients who have NO health insurance who will be the new recipients in Medicaid.

OK, one fact...

It's actually the free market concessions to Republicans that were built into the Affordable Care Act that guarantee cost control failure. Had we simply expanded medicare to cover everyone (that would a real government take over of health insurance) we could control costs like every other nation does. It's the markets that produce inflation, not government intervention. Costs will indeed continue to rise, but not because the ACA drives them up. rather because ACA fails to contain the market influences.

I must say I'm little disappointed to this article here. Not because it's a conservative voice, but because it offers absolutely nothing new for us to consider. Ms. Crockett has simply repackaged worn Republican pre-election talking points as post election analysis. This is echo chamber stuff. We could have some interesting conversations about health care, and the democratic budget plans, but this constant Republican circular reasoning back to ideological talking points will get us nowhere. We know they have an echo chamber over at the Center for American Propoganda, what do we gain from stepping into it?

I like that

"Center for American Propaganda." I'd adjust it a little bit, though. Center for Real American Propaganda. -nod-

Please Ms. Crockett

Provide me with the market based policy that will cover my neice, who is 9 and has CF. She is guaranteed to cost the insurer more money than they will recieve from her in premiums, and if they attempt to raise premiums to match she will most likely be unable to afford coverage, much as her parents cannot now. Please point me to the private insurer who will cover her and those like her where there is zero expectation of any profit. When private industry is unable or unwilling to provide a needed good or service, it is the role of government to do so.

It's (only) Money That Matters

I shouldn't be, by now, but I still am continually surprised by and bemused at how those on the right worship money (more precisely, profit) above all else.

Above a robust and healthy natural environment, which after all, only supports us all.

Above providing decent, basic health care to all Americans, so the poorest don't have to go crawl under a bridge to die.

Above doing the right thing with the modest investments of average folk, who are instead viewed as rubes and cash cows, and who are bet against by their investment managers.

Above honoring the deal made with long time public employees decades ago, who have worked hard in public service for lower wages than they could have had in the private sector, in exchange for decent benefits and a secure retirement.

Above honoring the health care and retirement insurance deals made with seniors.

Above investing in green and renewable energy sources which ultimately must replace fossil fuels, which are both destructive of the environment and finite in supply.

Keep plugging, Ms. Crockett, but best keep an eye on those demographics. Your side is dwindling. And when you come to the very end of things, trust me, you won't be thinking about money.

And then there's this..

The thing that surprised me about these Obamacare critiques is they all ignore the fact that health costs have been rising continuously for three decades. For some reason they act like costs only went up during the Obama administration. Obamacare clearly made a trade-off, they decided to focus on providing coverage first, and containing costs later. The irony is that they did that in a failed effort to get Republican votes.

The bright side of what's next is

> the end, at least temporarily, of control by the ludicrous outfit called the MN GOP.
> probably no government shutdown.
> we are highly unlikely to see ALEC programs passed as solutions for MN.
> no constitutional amendment chicanery.

The DFL is no bargain, but in light of the performance of the GOP in controlling what could be the WORST legislature in MN history, I'm thinking this is a step in the right direction.

States Rights

I don't why conservatives are pushing the states to not set up exchanges and leave that to the federal government. I thought they preferred state control to the bureaucrats in Washington.

And to be Fair

The cost containment aspects of Obamacare have not yet really gone into effect so we really don't know for sure what exactly will happen. Maybe they'll more effective than I anticipate.