There was one given when Gov. Mark Dayton’s budget proposal hit the table Tuesday, it includes a tax increase. But if Dayton would examine the course of the state’s economic recovery he would say “no” to increasing the tax burden on hard working Minnesotans.
Unfortunately for Minnesota families and businesses, the state’s positive fiscal narrative is unlikely to survive with two years of complete Democrat control of the legislative and executive branches; especially if they raise taxes.
Here are several reasons lawmakers should resist the urge to raise taxes this biennium.
To start with, look to the old adage, “If it ain’t broke, don’t fix it.” According to current budget projections, there will be $1.7 billion more to spend in the next biennium than the last biennium, a substantial increase in revenues.
Avoiding tax increases in the last budget cycle allowed for steady job growth that improved the state unemployment rate to 5.8 percent, a full percentage point lower than it was in early 2010. More people working meant more people paying income taxes. More people working meant more customers for Minnesota businesses which translated into higher corporate income tax collections for the state.
The bottom line is that the current tax rate structure is delivering more revenue to the state every year — no need to propose a major overhaul of the state’s tax system.
Another reason not to mess with the tax code is tax rates were just raised at the federal level for everyone — 2 percent for all wage earners through the payroll tax and 5 percent to 10 percent for higher income families and small businesses.
No one knows what impact these tax increases will have on the state’s economy. There is concern in Minnesota about the effect these increases in the payroll tax and capital gains tax will have on our economy. Dayton’s budget team developed a fiscal cliff scenario that predicted Minnesota’s unemployment rate rising to 7.1 percent by the end of 2014 if the Congress did not pass legislation to avoid a major federal tax increase.
Just last month our trusted economists warned us about the negative impact of federal tax increases on the Minnesota economy. How can we turn around this month and assume a state tax increase won’t have the same effect? It will. Raising taxes — federal or state — will slow the state’s economy and raise unemployment.
An alternative to increasing taxes and jeopardizing the state’s economic recovery would be to impose moderate spending restraint. Currently, the state is projected to spend, when including all funds, over $60 billion during the next two years. A modest reduction of 2 cents per dollar of projected spending would yield a small surplus at the end of the biennium. Democrats talk about hardships of spending reductions, what could be so difficult in finding 2 cents per dollar in excess or waste in $60 billion of expenditures.
Recently, Shar Knutson, president of the Minnesota AFL-CIO said: “After a decade of cuts only budgets and fiscal gimmicks that made life harder for middle class Minnesotans, elected leaders have an opportunity to finally balance our budget in a responsible way that moves Minnesota forward.”
Other than overlooking the significant fact that the state’s spending has grown by more than 50% in the last ten years, she is correct. There is a responsible way to balance the budget that will move Minnesota forward; and that is by eliminating waste, fraud and abuse, slowing the growth in state spending, not by raising taxes.
But if early bill introductions are any indication, the DFL is already signaling they are more interested in new spending than in spending reform. The House and Senate majorities are proposing new spending on big ticket items like all day kindergarten and increases in aid to local governments. Their proposed tax increases are hardly for current spending but for a tidal wave of new spending. The most damaging result of this legislative session could be the growth in state government at the expense of the growth in our state’s economy.
Phil Krinkie is a former state legislator and president of the Taxpayers League of Minnesota.