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Former Minnesota revenue chief John James launches site seeking broad redesign of state’s fiscal system

John P. James has launched a website, Sensible Tax and Fiscal Systems or STAFS, to promote his ideas for solving the state’s worsening fiscal crisis.

John P. James, a Perpich-era Minnesota revenue commissioner and tenacious public policy wonk, has launched a website, Sensible Tax and Fiscal Systems or STAFS, to promote his ideas for solving the state’s worsening fiscal crisis.

His site offers up three ways (PDFs) to close Minnesota’s current budget shortfall: “James Light,” “James Medium” and “James Jumbo.”

The cures he lays out include a temporary increase in the state’s individual income tax, a move poisonous to Republicans, and deep spending cuts, anathema to many DFLers. He urges other tough steps, such as extending the state’s sales tax to a wide array of now-exempt goods and services.

For those reasons alone, the James recommendations are almost certain to be brushed aside by Republican Gov. Tim Pawlenty and the DFL-led Legislature as they approach their end game in closing the 2010-11 state budget deficit. James counters that Minnesota appears destined for yet another smorgasbord of dubious short-term fixes that will technically balance its budget but worsen its fiscal situation for years to come.

Politically unrealistic as his ideas may seem, they are credible. James, an attorney and CPA, is one of the state’s leading tax experts. His suggestions would restructure the state’s fiscal system over the long haul.

John James
John James

James, 63, served as revenue commissioner from 1986 until 1991, when he joined Peter Hutchinson and Babak Armajani to found the Public Strategies Group consulting firm in St. Paul. From 1989 to 1991, he was chair of the Multistate Tax Commission, a Washington, D.C.-based agency backed by 47 of the 50 states to help apportion state tax bases equitably and promote uniformity in state tax systems. He chairs 1000 Friends of Minnesota, a nonprofit that advocates for environmentally sound land-use practices.

In 2006, James ran for state attorney general on the Independence Party’s losing ticket led by Hutchinson. So far, he has not been active in this year’s campaigns for statewide offices.

‘Not really a politician’
Armajani, who is chair at Public Strategies, says James is not limited by the current assumptions and conditions that guide Minnesota’s current political environment. He readily concedes that many of the James proposals “certainly aren’t likely to be readily embraced by people who are invested in the status quo.”

But Armajani warns that both the Legislature and the governor continue to engage in “incremental changes and patches that are just getting us deeper in a hole.” He cites as an example the plan now shaping up to balance the state’s 2010-11 budget in great part with one-time federal money.

“John is a veritable fountain of ideas for how to deal with the state’s fiscal problems,” Armajani adds.

“He shows up all over the place. He’s spent his life thinking about taxes. He’s not really a politician. He’s a brilliant guy with serious ideas we should pay attention to and a passion for good government. I’m grateful that there’s another voice out there other than the Republicans and the DFL.”

The principal elements of the James package would:

• Temporarily boost income tax rates to their level before the Ventura administration’s 1999 tax cuts. That would mean increasing the rates for households in the state’s three income tax brackets to 6 percent from 5.35 percent, to 8 percent from 7.05 percent, and to 8.5 percent from 7.85 percent.

• Expand the sales tax base to include clothing, food and many services now exempt, but cut the sales tax rate.

• Slash state subsidies to local governments, because these payments make tax and spending policies more inefficient and less accountable.

• Cut or freeze state workers’ pay.

• Rebuild the state’s “rainy day fund,” now totally depleted.

• Establish a “shadow government” to expose the folly of the constant short-term fixes being enacted to paper over the mounting structural problems with the state’s fiscal system.

Acting like tech bubble never burst
Defending his income tax proposal, James notes that the state’s 1999 income tax cuts came at the peak of the tax-generating high-tech bubble and “leave Minnesota still operating on the assumption that that bubble, not to speak of the housing bubble, never burst.” He adds that Minnesotans pay a lower share of their income for state and local government today “than at almost all times since the state began keeping track in 1990.”

James’ call for an across-the-board increase in tax rates would not add a fourth bracket to tax higher-income households at a 9.15 percent rate. The DFL had proposed that, while leaving rates in the other three brackets unchanged. Early this week, Pawlenty vetoed the DFL plan, which was panned by the GOP — and James — as a “soak the rich” proposal. James says the higher rate would have hurt many small businesses that pay individual income taxes as limited-liability and Subchapter S corporations and partnerships.

He would cut the state sales tax rate to 5 percent or less, in stages, from its current 6.875 percent but broaden its base enough to generate much more revenue than it now produces at the higher rate. His plan would ease the impact of the base broadening by offering credits to lower-income households.

The content on his website is based on work he has done for his new, nonpartisan nonprofit, which so far consists largely of a staff of one: John James. He plans to enrich its content and add links to other sites.

In 2008, James began packaging his proposals into “white papers” and sending them to the governor and legislators. Early this year, he outlined some of them to the Civic Caucus, an independent group that seeks nonpartisan solutions to civic concerns.

“I want to put it out there for people to see,” he says of his package. “I’m kind of addicted.”