Dayton will push for a ‘fair and simple’ tax system during the 2013 session

Unhappy voters handed the Gov. Mark Dayton DFL majorities in the House and Senate, which gives him a reasonable probability of enacting some tax and budget reforms.

Minnesotans are weary of lurching from one state budget crisis to another, so Gov. Mark Dayton’s key commissioners are crafting tax and spending reforms they hope will be built to last.

Myron Frans
Myron Frans

Sustainable is a word that was uttered repeatedly Tuesday by Revenue Commissioner Myron Frans and Jim Schowalter, commissioner of Minnesota Management and Budget, during a St. Paul forum in which they made the case for a sweeping overhaul of Minnesota’s budget and revenue policies.

“Where we’re trying to go is certainly not where we’ve been,” Schowalter said, emphasizing that one-time solutions approved by previous Legislatures have led to short- and long-term budget woes.

The newly-elected Legislature is facing a projected $1.1 billion biennial deficit and Schowalter added the state has accumulated a $2.4 billion debt to school districts.

“We need a different approach,” Schowalter said to a group of about 65 Twin Cities leaders drawn from the public, private and nonprofit sectors. Schowalter talked about performance-based or outcome-based budgeting, an approach that features a hard look at what state agencies are accomplishing with tax dollars and targets state spending to programs designed to make the greatest impact.

Three-legged stools

Using two three-legged stools to highlight the challenges linked to the current tax mix, Frans stressed that income, property and sales taxes used to play roughly equal roles in paying for state and local government. From 1999 to 2010, the portion of revenue coming from property taxes jumped from 30.4 percent to 39.8 percent. Meanwhile, the portion of state and local government costs paid for by sales taxes slipped from 34.7 percent to 26.6 percent.

James Schowalter
James Schowalter

Broadening the sales tax base is one major reform option under consideration by the Dayton administration. While the governor has talked about raising the income tax rate on wealthy Minnesotans, Frans didn’t reveal a specific proposal on Tuesday.

The DFL governor and the GOP-controlled Legislature failed to reach common ground in 2011, which led to a three-week government shutdown.

In the Nov. 6 election, unhappy voters handed the governor DFL majorities in the House and Senate, which gives him a reasonable probability of enacting some tax and budget reforms.

Schowalter said the governor’s reforms need to support his top three priorities:  creating jobs and improving Minnesota’s competitiveness, improving how state government works to deliver the best services at the best price, and producing sustainable budget and tax policies.

In constructing a tax reform package, Frans said, the Dayton administration is looking for changes that will make the system “fair, simple and support a strong and growing economy.”

Complexity in the tax code has grown dramatically over the past two decades. In 1987, there were nine adjustments or credits available to Minnesota taxpayers on the M1 form. By 2010, there were 50 adjustments or credits that could be made by taxpayers.

Louis Jambois
Louis Jambois

Louis Jambois, president of the St. Paul Port Authority, asked, “How bold are you willing to be?” He told the commissioners he believes they understand the problems and know what the solutions are, so he urged them to get about the business of unveiling and selling their plans.

Details final in January

Frans, who has visited 48 cities to conduct listening sessions across Minnesota, said the details of the reform package will be finalized by January.

The revenue commissioner said he is trying to determine what taxpayers want vs. what they would view as overreaching.

Kathy Tunheim, Dayton’s adviser on business issues, said in a MinnPost interview that just one week after the election that she is still “sorting through” the messages sent by voters.

In building political will for a comprehensive tax and spending reform package, she stressed that the business community will be consulted broadly for input.

“Business leaders face tough decisions all the time,” Tunheim said, while acknowledging that there will be difficult tradeoffs to make in reforming the tax code.

“How much government do we need and how are we going to pay for it,” she said, will be a key question of the Dayton administration and the Legislature.

Ember Reichgott Junge
Ember Reichgott Junge

Former Sen. Ember Reichgott Junge, who was at Tuesday’s forum, told the commissioners, “I would really like to see this happen.” But she predicted resistance to any reforms from certain political interests. “How can we help you?”

Others in the room also expressed support for a budgeting process that places greater weight on using data to analyze the effectiveness of programs and on setting goals for program outcomes.

While Minnesota politicians will be grappling with ways to streamline Minnesota’s tax system, Frans noted that his job could become even more complicated if President Obama and Congress simultaneously attempt to alter the federal tax code.

When the prospect of federal tax reform was broached Tuesday, Frans simply said: “It could happen.”

That comment drew sustained laughter from the forum audience based on the likelihood of a Democratic president and Republican House forging a tax reform deal.

Fedor can be reached at lfedor@minnpost.com.

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Comments (15)

  1. Submitted by Jeremy Powers on 11/14/2012 - 11:25 am.

    Glad someone laid out most of this stuff

    It’s been going on for at least years and received from the media about one one-thousandth the coverage as the wolf hunt, the bridge collapse and whatever the Kardashians are doing.

  2. Submitted by Kenneth Kjer on 11/14/2012 - 12:45 pm.

    Budget Deficit

    At least they are taking a pro-active look at it. “But she predicted resistance to any reforms from certain political interests.” I am willing to go out on limb and say Hann, Zellers and the rest of the Republican ilk, will oppose anything that is proposed just to do it and spite the taxpayers of MN, because of the election results. Further they will act like spoiled brats, and there will be name calling and completely and totally unprofessional behavior. Oh, Wait, I guess that isn’t much of limb I just went out on.

    • Submitted by Tim Milner on 11/15/2012 - 12:56 pm.

      To Kenneth’s point

      I would not be so quick to judge as many of those 50 deductions/credits discussed in this article include items that are very near and dear to the DFL majority. Should they be touched, I am betting you will hear screaming too.

      The most interesting thing to me is the 3 legged revenue stool comment. It seems that income taxes have reasonable maintained their portion of the state’s funding. It’s the sales tax – in a state who now sells as much services as “stuff”that no longer provides the revenue stream it once did. Would that not be one of the first sources to consider?

      But I wonder if “raise the sales tax” meets with as much applause in DFL circles as “tax the wealthy” does?

  3. Submitted by Jim Halonen on 11/14/2012 - 01:37 pm.

    Tax and Spend

    I would hope that those who find big government appealing will look at all the anti-austerity protests going on as we speak in Europe. This is what happens, eventually, with too much spending. Soon enough, even tax hikes on all income levels cannot pay the bill. Applying a heftier tax on the wealthiest is just a start down the road of taxing everybody more… and more. I think it’s reasonable to say: No, let’s do limited government instead.

    • Submitted by Nathan Roisen on 11/14/2012 - 03:39 pm.

      To say that the problems in Greece and Spain are only the result of big government is only true in the most simplistic sense.

      Greece’s debt problems are a result of a wide variety of factors –

      1) it’s economy is unsophisticated and inflexible, and therefore unable to grow under its own power – growth from 2000-2008 was driven by artificially cheap money.
      2) it’s currency is not under its own control, therefore it is unable to devalue to make its products more competitive on the export market.
      3) Tax evasion is extremely easy and rarely punished, leaving the government with far less revenue than nominal rates would suggest,
      4) it’s government officials fudged economic data in order to make its debt problems caused by factors 1-3 appear less imposing.

      This has resulted in a kind of perfect economic storm: when cheap money dried up, the economy crashed and was been unable to recover under its own power. There has been no monetary boost from a weaker currency because Greece is tied to the Euro. As the economy crashed, tax collections fell further, exacerbating the debt problem. And it all came crashing down at once when it was revealed that the government was lying about its economic fundamentals.

      Now, rounds of austerity take still more money out of the economy, meaning it grows more slowly than it needs to to meet its deficit targets. People there are pissed because there is no end in sight to the economic turmoil.

      The countries in Europe with the most generous government benefits – Sweden, Norway, Denmark – have actually been the most stable during the recession. If big government spending caused social unrest, then this would not be the case.

      Minnesota, compared to Greece, is economic Utopia. We have a big, diverse, flexible economy, an educated workforce, and government with minimal levels of corruption. I do not think that Greece is a valid comparison.

    • Submitted by Tim Walker on 11/14/2012 - 03:45 pm.

      Jim, I think it’s reasonable to say, “Why not both?”

      Is there any reason, Jim, why you are taking tax hikes completely off the table? The deficit is a complex problem, and there’s no one single answer to it, i.e., cut expenditures! So completely eliminating one avenue of shrinking the deficit just doesn’t make any sense.

      And please don’t repeat the slippery slope argument you made in your comment. I propose that we restore the upper tax rates that we had before Govs. Ventura and Pawlenty cut them. Restore … and no more.

      There. No slippery slope to Greece. Just a return to the tax rates of the past … when we didn’t have a budget shortfall (we even had a Rainy Day Fund — imagine that!) and our economy was in pretty good shape, i.e., no multimillionaires leaving the state in droves to go live in flat boring and income-tax-free North Dakota.

      What’s wrong with a plan to mix both tax hikes and expenditure cuts?

    • Submitted by James Hamilton on 11/14/2012 - 05:58 pm.

      What exactly is

      small government and/or limited government, in your opinion? These are terms that are bandied about with no apparent definition or agreement, making informed discussion difficult to impossible.

      If you mean spending, US spending as a percentage of GDP was about 24% last year. Spain’s, on the other hand, was 43%. Ours has averaged something on the order of 20% for the last 50+ years, dipping below 20% on only a few occasions, most recently late in the Clinton administration.

      If you mean something else, I’d certainly appreciate reading what it is you mean. For me, smaller government is government that stays out of my head and heart. I fully expect to pay taxes, as did our Founders.

      • Submitted by Sarah Silander on 11/15/2012 - 02:45 am.

        Informed discussion

        James,

        Your definition of smaller govt “that stays out of my head and heart” does not advance an “informed discussion”.

        And, your comparing GDP of the USA to that of Spain doesn’t either because the comparison is apples to oranges.

        That said, I do agree with you about the need for more details and fewer political sound bites.

        Me, I favor shrinking government *and* increasing taxes for some.

        Here’s an idea. Shrink law enforcement. A team of experts should identify law enforcement redundancies in the 7 Metro counties, then gradually merge all the separate agencies within a county into one single County law enforcement agency. The mergers should reduce headcount (I prefer attrition method) lower payroll, building maintenance, procurement and many other costs.

        For example, in my county (Ramsey) there are at least 10 separate agencies operating here on a regular basis. We have Sheriff, St. Paul Police, State Fair Police, 6 separate suburban police depts, and State Troopers.

        The theory of economies of scale says that procuring goods on county-wide basis (versus 10 separate agencies) should yield significant savings. Maybe millions of dollars per county over time? Case in point — a county can drive a much harder bargain procuring 20 new squad cars in one deal than an agency that buys one car every few years.

        Hope you will weigh in James.

    • Submitted by Ray Schoch on 11/14/2012 - 06:20 pm.

      And…?

      “This is what happens, eventually, with too much spending.” Too much spending on what? What degree of austerity seems reasonable to you?

      “Applying a heftier tax on the wealthiest is just a start down the road of taxing everybody more… and more.” Until what happens?

      “I think it’s reasonable to say: No, let’s do limited government instead.” In what way(s) should it be limited?

      Let us know what state services you now receive that you’re willing to forego to lower spending. Since there’s no free lunch, how do you propose to support government functions without taxes? Why is “limited government” the goal? Couldn’t it be “cost-effective” or “efficient” government?

  4. Submitted by Jim Bernstein on 11/14/2012 - 05:30 pm.

    “Limited Government” Is Just A Bumper Sticker

    “Let’s do limited government” is neither reasonable or useful without some context and specificity about what “limited government” will look like. Several organizations including the Citizens League have sponsored community forums that engage citizens in the budgeting process. Citizens favoring “limited government” end up championing cuts to state governement programs and functions that they don’t use or need but not to those programs or functions that they deem “necssary” or “important” because they are programs and functions that are useful or necessary to them.

    Many people who advocate “limited government” also have a naive belief that the private sector can always do something cheaper or more efficiently or simply better than any government agency or program. This is taken as gospel in some “limited government” circles despite considedrable evidence to the contrary. In fact, government does utilize the private sector to provide services when it is possible to do so but that is not a universal solution.

    Government has taken on more responsibility because citizens (through the legislature) ask government to act.

  5. Submitted by Matt Haas on 11/14/2012 - 08:34 pm.

    Umm no

    What you’re seeing in Europe is the product of an ill advised effort to create a unified economic bloc out dozens of poorly matched partner nations. The titans of northern Europe thought could have their cake and eat it too, but in abscence of a unified political system that has any teeth, and with debtor countries like Greece and Spain locked into the Euro and unable to inflate their way out of trouble the results are predictable. You’ll note the non Eurozone social democracies are doing just dandy. Scrap the Euro, and the EU for that matter, and these problems for the most part go away. Greece and Spain become just small debtor economies, the rest of the European economy would be relatively unaffected, and the world would yawn.

  6. Submitted by joel gingery on 11/15/2012 - 06:03 am.

    Jobs, Competitiveness, Efficiency, Sustainability

    My judgement – and you can certainly ask about the value of that – is that Governor Dayton’s initiatives talked about here by Mr. Frans and Showalter and Ms. Junge have very little likelihood of delivering their stated goals.

    For instance, it assumes a known or direct connection between government activity and creating jobs. What kind of jobs? How many? We now recognize that we live in a complex world where while everyone and everything is connected, the connections are not linear cause-and-effect. Press this button and…

    This applies to ‘Performance Based Budgeting,’ too, which is an attempt to assert control thru the current organizational structure more or less. A more ‘productive’ approach involves changing the way the organization works to deliver services to the customer. Costs have little to do with the ability of organizations to deliver services to customers; it is the way they are organized. (e.g. the healthcare system) See “Systems Thinking in the Public Sector,” by John Seddon.

    Are ‘competitiveness’ and ‘efficiency’ and ‘sustainability’ desirable as they are conceived of in these initiatives. In my view they are short sighted and represent a business-centered prospective of society. i.e. society should run like a business. This is up-side-down thinking. Government as our agent spends much of our time and resources mitigating or preventing the negative effects business has on society. Shouldn’t business run more for the benefit of society rather than vice versa?

    What does ‘competitive’ mean in a world that is interconnected in complexity? If you value ‘efficiency’ how does that affect your ability to respond to the unexpected, to be creative and innovate?

    In a world that is constantly changing what does it mean to be ‘sustainable?’

    In my judgement – see caveat above – a wiser and more prudent approach would be to think about attaining broader, long-term, ideal goals such as those identified in the “Report by the Commission on the Measurement of Economic Performance and Social Progress,” (http://www.stiglitz-sen-fitoussi.fr/documents/rapport_anglais.pdf), esp. p. 14-15, goals that are worth pursuing. Focusing on long-term, ideal goals facilitates agreement and stokes creativity on means to attain them.

    • Submitted by Rachel Kahler on 11/15/2012 - 09:33 am.

      Long term goals

      That’s novel…
      Actually, that’s exactly what this country has been missing–and not just the government. Everyone should have their short term and long term goals laid out. For individuals, a 5-year or 10-year approach is fine, but for governments, that is short term. City, state, and federal governments need longer-term goals that stick around past the next election and/or political hissy fit. More importantly, while not everything done by the government must fit within that goal, laying out how projects and spending fit will help to justify them to the people. As it is, we have an “inefficient” government because true long term goals don’t exist. Projects and spending toward any goal are short term and frequently either duplicated or erased as those political hissy fits roll through Congress or our legislature or our city council.

  7. Submitted by Jim Halonen on 11/15/2012 - 09:30 am.

    Too much spending

    A good start would be to review the proposed spending to the constitution – ex. does public money to a sports stadium (or two) in every city stand up to constitutional review?

    • Submitted by Rachel Kahler on 11/15/2012 - 01:46 pm.

      Why wouldn’t it?

      As opposed as I am to burning my money at the Viking altar, I don’t see how it would be unconstitutional.

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