Why fairer taxes must be part of the budget deficit solution

By Dane Smith and Nan Madden
On behalf of the Invest in Minnesota Campaign

Published in the Star Tribune, Feb. 3, 2009

    As Minnesotans brace for all the human pain and suffering caused by one
of the more serious private-sector failures in memory, it makes no sense
whatsoever to knock the stuffing out of our public sector as well. It's our 
public institutions and investments - schools and colleges, transportation 
systems, public health protections, and human service and social supports for 
families - that provide not only emergency assistance and a safety net, but 
also the long-term investments we need to achieve a more evenly shared 
prosperity.

    Gov. Pawlenty's proposed budget compounds private-sector job loss with
public-sector cuts. And once again, as in 2003, it imposes disproportionate 
budget-balancing pain on those least able to afford more hardship. The 
proposal is not without redeeming value. To be sure, some cuts need to be 
made to balance a $5 billion projected shortfall over the next two years. 
And it was reassuring to hear Pawlenty say in his budget message that our 
governments do have a valid role as strategic investors in our future.

    But in many respects this budget is both cruel and unusual punishment.
It's cruel in that it disproportionately demands sacrifice from those in
the middle and lower incomes, those least able to cope with the steepest
recession in decades. And it's unusual in that many governors in other
states are at least leaving the possibility of revenue and tax increases
on the table.

    Three particularly damaging elements in the proposal stand out. The
proposal would deprive an estimated 113,000 hard-working Minnesotans the
modest subsidies they depend on for health care, which is otherwise
unaffordable or not provided by their private-sector employers, many of
whom are now further reducing health benefits. The proposal also reduces
state spending on higher education by 10 percent, making it harder for
Minnesotans to access the education and training they need to succeed in
this economy, and putting direct pressure on tuition. The proposal once
again cuts local governments, which are strained to the limits already
to provide basic services - from police and fire protection to parks and
environmental safeguards - and a quality of life in our neighborhoods
that Minnesotans prize.

    Some cuts are unavoidable and previous governors always used a
combination of budget cuts, accounting shifts and spending of reserves,
AND tax increases to get through budget crises. The Invest in Minnesota
Campaign, comprised of members and leaders of our state's religious,
labor and nonprofit communities, believes that we also will need to
raise revenue fairly to avoid these damaging cuts to the public
investments that can ensure that all Minnesotans have the opportunity to
succeed.

    A range of feasible revenue-raising options exist, and policymakers
should ensure that, as a whole, their revenue package makes the tax
system more fair. We could consider options such as modernizing our
sales tax. But such options usually expect low- and middle-income
Minnesotans to pay a larger share of their income, and must be combined
with other tax changes to ensure greater fairness overall.

    The best way to raise tax revenues fairly is through the income tax. 
For example, one possibility would be a return to the more reasonable income
tax rates on top incomes that existed before the huge permanent tax cuts
passed in 1999 and 2000.

    Between 1997 and 2001, more than half of the $13 billion in surplus
dollars that Minnesota enjoyed was spent on permanent tax cuts (including 
income, property, and auto tab taxes) and rebates. Since then our tax 
system has become more regressive and unfair than it already was. Currently, 
those making $355,000 a year or more pay about 9.5 percent of their income 
in taxes while other Minnesotans are paying 11.7 percent. Minnesota currently 
foregoes about a billion dollars a year, just in income taxes, as a result 
of the cuts in 1999 and 2000.

    Minnesota cannot sustain the tax cuts made during those flush years.
Many of our conscientious top-income individuals have said that they can 
afford to pay more to invest in our human capital and physical infrastructure. 
And economists also agree that it's wise policy. Among them are Nobel Prize 
winner Joseph Stiglitz of Columbia University. He recently wrote that "tax 
increases would not in general be more harmful to the economy than spending 
reductions.. . . if anything, tax increases on higher-income families are the 
least damaging mechanism for closing state fiscal deficits in the short run."
Minnesota's state economist, Tom Stinson, talks frequently these days about 
how investments in public education, as well as private-sector investment in 
research and innovation, have made a big difference in our economic performance 
over many decades.

    Taxes are the dues that people pay in a democracy to build a civilized
society. Taxes support services, structures, and programs that protect
and benefit Minnesotans. The anti-tax orthodoxy that has prevailed at
the federal and state level for more than a decade has not delivered the
goods that were promised, and it's time to get reasonable about modest
increases on those who can most afford it.
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Dane Smith is president of Growth & Justice. Nan Madden is the director
of the Minnesota Budget Project, Minnesota Council of Nonprofits.

The other leaders of the Invest in Minnesota Campaign are: Marcia Avner,
public policy director, Minnesota Council of Nonprofits; Brian Rusche,
executive director, Joint Religious Legislative Coalition; Ray Waldron,
president, AFL-CIO; and Julie Schnell, president, SEIU Minnesota State
Council. They have combined efforts to form the Invest in Minnesota
Campaign because they believe that Minnesota's fiscal course in recent
years is diminishing the quality of life in our state and that we need
more revenue, we need to raise it fairly and we need to invest in
Minnesota.