Editorial: MN can afford a reasonable tax increase
Conservatives and anti-tax advocates would have Minnesotans believe government is growing out of control. In reality, the opposite is true. Adjusting for inflation, budgeting gimmicks and state takeovers, per capita state general fund spending is 18 percent less that it was a decade ago. In present-day dollars, this represents a $5.2 billion dollar cut in state funding for education, transportation, economic development and property tax relief.
The Great Recession deserves much of the blame for this decline in state investment. But big tax cuts in the early 2000s, coupled with a decade of “no-new-tax” policies, contributed to the large plunge in general fund revenue. Over the last decade, this led to recurring biennial state deficits and real cuts of 13 percent in state support for K-12 education, 35 percent for higher education, and 43 percent for property tax relief programs.
In present-day dollars, annual per capita state general fund revenue now hovers near a 20-year low of $3,300 per capita, down from $3,700 to $3,800 in the first half of the last decade. Despite a growing economy, real per capita revenue is expected to stay flat or decline slightly over the next four years if state policymakers fail to take action.
To prevent continued biennial state budget crises, policymakers must enact reasonable permanent revenue increases and spending reforms. Asking Minnesota’s richest to pay their fair share – currently under consideration at the Capitol – will help provide the revenue necessary to reverse a decade of disinvestment. Currently the wealthiest two percent pay 20 percent less per dollar of income in state and local taxes than do middle-income Minnesotans.
Dayton’s fourth tier income tax would impact less than one percent of Otter Tail County filers. An income tax plan that passed the House would impact even fewer while the Senate income tax plan would impact slightly more filers than the governor’s plan.
Since 2003, Perham-Dent Schools have seen a 19 percent decrease in real per pupil state funding; New York Mills experienced a 14 percent decrease. School financing proposals being debated at the Capitol should partially reverse this decline by providing needed new revenue.
Local Government Aid funding formula proposals under legislative consideration would provide increased city service funding and could help ease property taxes by boosting Perham’s LGA 27 percent and New York Mills’ by 10 percent from 2013.
Those who say Minnesota can’t afford these investments because an income tax increase would destroy jobs are ignoring the lessons of history. Examining data going back to 1950, Minnesota 2020 found that income tax rate hikes are not associated with low job growth. In fact, Minnesota job creation and personal income growth has been stronger – both in an absolute sense and relative to the national average – following a state income tax rate increase and weaker following a rate decrease. This flies in the face of everything we are told by opponents of an income tax rate increase.
Minnesota is not a high tax or big government state. It ranks in the middle of the pack in state and local revenue per $1,000 of income and in spending. This leaves rooms for a modest and necessary increase in public investment.
Another indication that a reasonable tax increase is affordable comes from the state’s Price of Government projections, a measure of state and local government revenue relative to statewide personal income. The Price of Government under Dayton’s budget over the next four years will actually decline; in fact, it will be less than it was during the tenure of anti-tax Governor Tim Pawlenty.
The percentage growth in Minnesota jobs and personal income has lagged behind the national average over the last 10 years, after exceeding the national average in previous decades. This is a clear signal that the “no new tax” polices in place since 2003 – and the corresponding disinvestment in education, infrastructure, and public services – have failed.
Minnesota can afford a reasonable tax increase to reinvest in these critical public assets. We cannot afford to continue the discredited policies of the last decade.
Minnesota 2020 is a nonpartisan, progressive think tank that focuses on education, health care, transportation and economic development. For more information, visit www.MN2020. org.