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Can we handle the truth?

Kudos to Baird Helgeson of the Strib for his Sunday 1A piece “Governor’s race is all about taxes.” I wish it had been more blunt, but it gave us many of the facts necessary to figure out that no candidate for governor has publicly committed to a program of tax hikes and spending cuts that would balance the budget in the next (2011-13) biennium. That task must be the next governor’s top priority (and perhaps all 10 of the next guv’s top 10).

According to the current projections, the next governor will have to identify a combination of tax hikes and spending cuts totaling $5.4 billion to balance the budget. The state Constitution requires a balanced budget to the start the next biennium on July 1, 2011. Gov. Pawlenty has already used up the known accounting gimmicks for pushing spending into the future and, unless something amazing amazing happens in the upcoming legislative session or in the economy, Pawlenty will leave the state’s finances in shambles for his unfortunate successor to face.

The leading Republican candidates say no new taxes at all. This is for them an article of faith. If they mean it, they are honor-bound to describe — in sufficient detail to enable us to grasp what it will do to schools, health care, poverty programs, etc. — where they would propose to cut $5 billion.

Here’s what they gave Helgeson, first state Rep. Marty Seifert:

State Rep. Marty Seifert, a Republican candidate for governor, said he would reduce entitlement programs, eliminate at least a couple of state agencies and cut aid to local governments instead of raising taxes. All would yield some reductions, although none large enough to balance the budget.

“We have entitlement programs that automatically grow without question,” Seifert said. “That’s really where a lot of these means-testing, downsizing, right-sizing, economizing ideas are going to have to take place.”

Still, Seifert wouldn’t put a price tag on his cuts, or say how deep they could go.

Tom Emmer:

“The state absolutely has to go along without raising taxes and fees,” said state Rep. Tom Emmer, another GOP candidate.

Emmer said he would look at “every fund” to find savings, including K-12 and human services. He also would investigate dedicated funds set up for roads, health care and debt payment.

Emmer did not offer specifics. “I am not going to because I can’t yet, but you have to look at the whole picture.”

On the DFL side, every candidate has said that tax increases will have to be part of the solution. Some have been more specific than others about the size and shape of the tax increase they favor. But many of the tax ideas that are out there raise significant unanswered questions. For example, Mark Dayton says he will raise taxes on the rich. It is a shocking but well-established fact that the wealthiest Minnesotans actually pay a smaller share of their income in state and local taxes than do average Minnesotans. Yes, true.

And Dayton says that if the richest 10 percent pay a share of state taxes payments is equal to their share of state income, that would eliminate half the deficit.

But there’s a catch. The reason for the shocking fact above is that the state gets so much revenue from the inherently regressive sales tax. There’s no obvious way to get the rich to pay a largest share of sales taxes. Dayton wouldn’t answer Helgeson’s question about how he would finesse that problem.

Two of the other leading DFL candidates, Speaker Margaret Anderson Kelliher and R.T. Rybak, had ideas for progressive tax hikes, but neither would raise much revenue. State Senate Tax Chair Tom Bakk knows the tax stuff better than any of the others, and he sponsored the big revenue bill that Pawlenty vetoed in 2009. He still favors that broad income tax hike, which would raise a lot, but not nearly enough.

So far as I can tell, the DFL candidates haven’t been any more forthcoming than the Repubs about what cuts they will make to fill that portion of the budget hole that their tax increases will leave.

I don’t mean to be willfully naive here. Spending cuts are not really popular and tax talk is politically toxic. Republicans love to run against Dems as the party that always favors higher taxes. Promises of no new taxes, tied to promises of a balanced budget by cutting waste, fraud and abuse seem to sell pretty well for Repubs. On the latter point, I would mention that in order to — temporarily and unsuccessfully, via unallotment — balance the current biennium budget without a tax increase, Pawlenty relied on pushing $1.8 billion of school funding into the future with no revenue to pay for it, and when he really to make some cuts, he had to eliminate a program that enables poor people with diet-related health problems to afford food that their doctors said was necessary for their health.

But can we just be naive enough to stipulate that the candidates for governor need to be reasonably straight with us about how they are going to balance the budget?

Comments (20)

  1. Submitted by Ann Spencer on 01/25/2010 - 11:10 am.

    It’s pretty obvious that any real solution to the state’s budget problems will involve both tax increases and significant spending cuts—which is not a recipe calculated to win favor with voters. Hence the question posed by the article’s title. I don’t envy the gubernatorial candidates of either party.

    Economic recovery would boost tax receipts across the board—let’s hope it happens, for all sorts of reasons.

    By the way, are your proofreaders taking the day off? This post was so riddled with typos that it was difficult to read.

  2. Submitted by John E Iacono on 01/25/2010 - 11:14 am.

    Everyone talks about 5.1 billion, but no-one seems to say what percentage of the total state budget that is. Probably because no-one knows?

    It seems to me that it’s likely in the neighborhood of 10% or so.

    If that is the case, I think arguing that such a cut COULD not be made is a little deceptive: more than one Minnesotan has had to do that in the past year or so. To take as a given that it cannot be done seems to me unhelpful. Where it is done, of course, makes a political difference. AFSCME pensions, anyone?

    And since economists are never very clear or accurate about the future state of the economy I will allow candidates on both sides to be unclear about how much they will cut and where. Perhaps as we get closer…

  3. Submitted by Hiram Foster on 01/25/2010 - 12:07 pm.

    The state spends money on two things; health and human resources and education. When we are talking seriously about cuts, those are the two things we are talking about.

  4. Submitted by Hiram Foster on 01/25/2010 - 12:15 pm.

    The deficit comprises 20% of the state budget.

    According to the Joint Religious Legislative Legislative Coalition (and who knows if what they say is true?), if we:

    Cut all kids from health care.
    Eliminate all cash welfare.
    Shut down 20% of nursing homes.
    Cut all government salaries by 10%.
    Eliminate all Local Government Aid.
    Close all state parks.
    Eliminate legislator per diem.
    Shut down 10 state college campuses.
    Cut all State government operations by 50%.

    We will have succeeded in reducing the 5.4 billion dollar deficit by only 3.6 billion dollars.

  5. Submitted by Hiram Foster on 01/25/2010 - 12:50 pm.

    So speaking personally to the headline question, “Can we handle the truth?”, I am not sure I can.

  6. Submitted by dan buechler on 01/25/2010 - 03:38 pm.

    What did you guys think of today’s strib editorial? I think Black’s reporting here is a little more straight forward but congrats to both for bringing this up.

  7. Submitted by Brian Simon on 01/25/2010 - 03:47 pm.

    “Can we handle the truth?”

    Collectively? No, of course not. The fraud of tax cuts paying for themselves is alive and well. Republicans and conservatives, despite all evidence to the contrary, continue to claim that we can cut taxes, maintain benefits and eliminate waste and fraud in government to make up the difference. This something for nothing promise is very, very popular. Somehow Dems are afraid to rebut impossible promises with facts, and by talking to voters like the adults we are. Of course, the media could do a better job of reporting the details of various candidates’ proposals and spend less time on horse race or tit for tat ‘news’.

  8. Submitted by Thomas Swift on 01/25/2010 - 04:42 pm.

    There is a truth emerging that is very likely going to push many free spending liberals over the edge.

    That truth is that the economy we are recovering to is going to be a vastly smaller one.

    I have taken pay and benefit cuts in the past year and a half amounting to more than 15%, and in conversations with my peers it is clear that my situation is not unique.

    My professional organization has been advising members that we are not likely to recover those losses for a decade or more.

    If generously compensated professionals are getting their knees cut out from under them, it doesn’t take a very deep thinker to realize that low skill trades and services workers are in for a real drubbing.

    Shifting taxes to “the rich” might be popular rhetoric in left-wing mosh pits, but the reality is that it won’t work for two very simple reasons.

    1. There are not enough “rich people” to cover the deficit.

    2. Most “rich people” are also “smart people” who can dance a tax deduction two step to perfection. And when that tune is over, there is always shuffling off to Buffalo, or Texas, or Oregon, or Florida or any other state that doesn’t tax income.

    Hiram is right. After all is said and done, cuts are going to have to reach HHS and education…or do they?

    One alternative I haven’t heard talked about much is a radical overhaul of how those services are delivered…and by radical, I mean pitching tenure, step and lane over the side in favor of results oriented compensation in education. And HHS services may have to fall back on a model that isn’t so very convenient for their consumers.

    For instance, Eric mentioned the special food program that was cut. Instead of handing out cash, why doesn’t the state hand out special food itself? It seem to me that the state could buy in bulk at a much better price than a single consumer. And if folks were willing to pick their free groceries up at regional warehouses, transportation costs would be a non-issue for the state.

    That’s just one example, there’s a lot of work to do to figure this out, but short story is that we *all* need to face the truth: The party is over for awhile; it’s time to get serious about making due with what we have.

  9. Submitted by dan buechler on 01/25/2010 - 05:55 pm.

    Thomas Swift, I agree with you in part. Not so sure about your food idea tho but there are programs like Fare Share. Now if you take away access you reduce the use, one not so subtle way of discouraging people of their rights positive not negative (you and I can disagree but thats ok). And remember when we agree another angel gets it wings at Minnpost.

  10. Submitted by Richard Schulze on 01/25/2010 - 07:17 pm.

    Mr Swift touches on a great point. The new economy will be smaller. Both in growth as well as in job creation. The previous economy was not sustainable.

    The basic assumption that jobs will eventually return when the economy recovers is probably wrong. Some jobs will come back, of course. But the reality that no one wants to talk about is a structural change in the economy that’s been going on for years but which this recession has dramatically accelerated.

    Under the pressure of this recession, many companies have found ways to cut their payrolls for good. They’ve discovered that new software and computer technologies have made workers in Asia and Latin America just about as productive as Americans, and that the internet allows far more work to be efficiently outsourced abroad.

    //The expansion was really fueled by housing. A huge amount of job creation was tied to housing, as well as a huge amount of consumption. Housing peaked in 2006.

    Over the past decade, rising US household spending has served as the main engine of US economic growth. From 2000 to 2007, US annual personal consumption grew by 44 percent, from $6.9 trillion to $9.9 trillion – faster than either GDP or household income. Consumption accounted for 77 percent of real US GDP growth during this period – high by comparison with both US and international experience.//

    http://www.zerohedge.com/sites/default/files/McKindsey%20On%20Consumer%20Debt.pdf

  11. Submitted by John E Iacono on 01/26/2010 - 10:17 am.

    (#4) On January 25, 2010, Author Editor Hiram Foster says: The deficit comprises 20% of the state budget.

    Hiram,

    If 5.1 billion is 20% of the current state budget, then the current budget must be 25.5 billion.

    Last I heard, it was 40 billion plus, and has not been in the twenties for years.

    Want to try that again?

  12. Submitted by Hiram Foster on 01/26/2010 - 11:22 am.

    I do tend to believe that we will not be able to grow out of the deficit as we have at times in the past. My suspicion is that the last time we grew out of the deficit, in the aftermath of the 2003 crisis, the growth was illusory, and that based on those illusions, we made overly optimistic assumptions, the failure of which have exacerbated the current economic crisis.

    The scope of political discussion in St. Paul seems to come down to a choice between two alternatives. We can choose to make things worse, or in the alternative, we can choose to make things worse faster and with greater severity.

  13. Submitted by Hiram Foster on 01/26/2010 - 11:34 am.

    There are three ways you can eliminate a budget deficit. You can lower costs, you can raise revenues, or you can borrow the money. Essentially, both Democrats and Republicans are in favor of cuts in varying ways and degrees. With respect tax increases, Democrats favor them and Republicans are unalterably opposed to them. As for the third alternative, borrowing for operating expenses, this seems to be publicly off the table because it’s seen as unconstitutional. But should it be? And is it really? The fact is, unallotment can be seen as a form of borrowing as the governor simply chooses less than what the state owes under statute. A more blatant form of borrowing occurs with the education shift where the governor reduces the amount the state schools with the likely result that the schools will then do the borrowing, in effect allowing the state to do indirectly what the constitution says it can’t do directly.

    What we should all understand is that we have lost our innocence. It may well be the time to do what any household would do if they could in hard times, borrow money to pay essential expenses. It’s not a good alternative, but I don’t see any that are better, and this is after all, with lower interest rates, a good time to borrow. The constitution issue remains a problem, but we are in fact borrowing now, and maybe with a little luck, with a little improvement in the economy, we can pay the back before the constitutional chickens have a chance to come home to roost.

  14. Submitted by Hiram Foster on 01/26/2010 - 11:40 am.

    Those were Religious Legisltive Action Council numbers, not my own. I can barely count up to twelve, one reason I am never allowed near a Vikings huddle.

    One figure I heard last night at my local Marxist Leninist cell meeting is that on an inflation adjusted basis, the deficit is seen as about 8 billion dollars. According to my abacus, that’s 20% of 40 billion.

    I will say also that numbers come flying in and out of these discussions with a startling abandon. For example, in your 40 billion dollar figure are you counting federal expenditures? In thinking about these things, sometimes the federal expenditures are counted, other times they are not.

  15. Submitted by John E Iacono on 01/26/2010 - 12:33 pm.

    What fun!

    As I mentioned in my first post, no-one seems to know what the actual state budget is.

    And it appears no-one knows what the projected deficit is, either!

    That ought to help solve the problem!

  16. Submitted by John E Iacono on 01/26/2010 - 12:34 pm.

    My forty billion was a number that some pol let slip during the unallotment discussions in June.

  17. Submitted by Hiram Foster on 01/26/2010 - 12:59 pm.

    A lot of bright people put in a lot of effort to confusing things for the rest of us. Complexity is a rhetorical tool. Among other things, the state has decided to consider inflation for money coming in, but not for money going out.

    As for the projected deficit, to begin with no one knows what the future will bring. You can factor in inflation, which turns a five billion dollar deficit instantly into an 8 billion dollar deficit. If uallotment unravels, the deficit goes up again.

    What I know is that there are a lot of different numbers out there, and that across the political spectrum there is agreement that all of them are really bad.

  18. Submitted by Hiram Foster on 01/26/2010 - 01:02 pm.

    Something I deal with is that in terms of state taxpayer dollars, education is the largest item in the state budget, larger than the other thing the state pays for, health and human services. But if federal dollars are factored and what federal dollars through the state pay for, than health and human services is the largest budget item, larger than education.

  19. Submitted by Bernice Vetsch on 01/26/2010 - 02:58 pm.

    How about a one-time tax on the SAVINGS in tax payments to the state enjoyed over the last eight years by those earning $500,000 per year or more?

  20. Submitted by dan buechler on 01/26/2010 - 05:01 pm.

    not to get to lovey dovey and all but what do you think of the acorn faux pimp/right wing hero getting busted for wiretapping a democratic senator’s office? Sounds like another republican watergate to me.

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