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From Kick-the-Can to Red Rover: Honest tax reform must begin with tax expenditures

Any increased spending should be tied to reforms, not just restoring previous funding cuts.

One of the best things you can say about Gov. Mark Dayton's recent budget proposal is that it is free of "kick-the-can" tricks and gimmicks.
CC/Flickr/pfarrell95

As we’ve talked with thousands of Minnesotans about the state’s budget realities and trends, they’ve literally gasped with disbelief when they’ve seen the “kick-the-can” tricks and gimmicks used to push the burden of hard choices off onto future generations. One of the best things you can say about Gov. Mark Dayton’s recent budget proposal is that it attempts to break that cycle and begins to deal with some of those hard choices today.

Shawn Kershaw
MN2020
Sean Kershaw

I hope we can now begin a more fruitful game, in which one side sends over its best ideas and the other side responds in kind. Good ideas on both sides may break through the clutter. Even among opponents, the quality of the conversation is already better than it’s been in years.

From the Citizens League’s perspective, we’re encouraged by Dayton’s proposal to broaden, and lower, the state’s sales tax. It currently covers too few things, meaning it has to be too high, and too unstable. This is a very important reform, but it’s only a piece of the puzzle and not an end, in and of itself.

Exempting certain items and actions from the state’s sales tax is one example of a tax expenditure [PDF] — an exemption for a particular activity done by a particular group, that someone once decided should be subsidized by the rest of Minnesota. Roughly 40 percent of our state’s budget is kept off the books and running on autopilot through various tax expenditures. Adding them back into the budget picture — not just as a source for more money — is a top legislative priority for the Citizens League. It’s important to evaluate them on an ongoing basis as a way to make state finances more stable and aligned with economic realities.

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What we haven’t yet had, and what this budget proposal doesn’t provide, is a much-needed discussion about the value of what Minnesota is getting for those tax expenditures.

Similarly, the critical response to Dayton’s budget proposal has focused on the amount of new revenue it would generate, missing the point that it doesn’t address the value of the services we’re receiving in health care, education, transportation and elsewhere before considering additional tax dollars. Any increased spending should be tied to reforms, not just restoring previous funding cuts.

We know from our Common Cents budget and tax reform workshops that Minnesotans care more about the value of public services than how much is spent, and tie tax fairness to the quality of these services. The discussion should be about value and policy reform, not just spending more or less.

The people we talk with also care about the sustainability of our spending, and how it affects our future growth and economic productivity. Health-care costs are increasing out of control, with Medicaid at the leading edge. Medicaid was designed as a safety net program, yet today it pays 40 percent of our long-term care costs — $1 billion annually. If current trends hold, it will be up to $5 billion by 2035 and it will ruin our fiscal and economic future. Reforming Medicaid to reward savings is one example of the changes we need to be considering now for Minnesota to end up where it needs to be.

Revenue Commissioner Myron Frans was right to have dozens of conversations with Minnesotans about the need for tax reform prior to crafting this proposal. We need to continue that conversation, broadening it to include the value of services, tax expenditures and other items on the spending side of the equation. We hope this is just the beginning of such a discussion. We’re inviting all Minnesota’s citizens — not just interest groups, formal policy-makers and elected officials — to “come over” to a better discussion about where we must go as a state. Policy reform depends on it.

I encourage you to join us at our Capitol Solutions legislative event on Feb. 13 at the Minnesota History Center to learn more about tax expenditures and our priorities for tax and budget reform.

Sean Kershaw is the executive director of the Citizens League and a member. He can be reached at skershaw@citizensleague.org, 651-289-1070, @seankershaw (Twitter), or Facebook.

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