On state tax policy, hurry up and wait
Address immediate needs, then sit back and take the long view for comprehensive reform.
Here’s all the evidence anyone should need to be convinced of Minnesota’s desperate need for comprehensive tax reform:
On one hand, Gov. Mark Dayton is proposing a tax credit for child care expenses. On the other hand, he would impose a new tax on gasoline and increase the metro sales tax on most consumer purchases.
If Harry Truman were alive today, he might add one-handed governors to his plea for one-handed economists.
The child care credit would provide an average tax credit of about $480. Meanwhile, the new and increased gasoline and general sales taxes would add at least $300 to family budgets and up to twice that in two-income/two-driver families. At best, if gas prices stay low, families with child care expenses may come out a few dollars ahead. If gas prices go back up (and who doubts that future?), low-income families likely will fall farther behind.
In effect, Dayton is proposing to take money from the human services budget, subtract the bureaucracy’s costs of collecting taxes and distributing assistance, and use what’s left to pay for roads and bridges. Isn’t that the definition of inefficient government?
For their part, Republicans hardly have taken the high road on tax policy. In 2009, the 21st Century Tax Reform Commission appointed by Gov. Tim Pawlenty offered thoughtful, strategic and forward-looking recommendations. Even though it included some longtime GOP favorites (reducing business taxes, for one) it made the honest observation that reducing some taxes required increases in other taxes. That trade-off doomed the report with Pawlenty and Republicans before it even received a hearing.
A strong case can be made that the Republicans’ failure to lead on tax reform in 2009 paved the way for Dayton’s tax-the-rich plan in 2013. Thoughtful reform in 2009 would have removed the capacity and the urgency to raise taxes four years later.
In today’s divided Minnesota government, it seems unlikely that Dayton’s current budget proposals will survive. But the Republican-controlled House of Representatives can’t simply say no to everything and win favor with voters. Dayton’s goals are laudable, even if his specific solutions are flawed. It is in every Minnesotan’s best interests to close the income gap and have a growing middle class. And Dayton is at least willing to back his spending plans with realistic and long-term funding mechanisms.
Minnesota’s economic prosperity won’t be sustained, though, with a new variation on the continuing partisan debate between tax-the-rich and no-new-taxes. It will be less well-served by ad hoc tax policy that is defined to meet the sometimes-conflicting needs and demands of specific constituencies rather than the long-term interests of all Minnesotans.
The new battle cry for Republicans and DFLers should be a single word:
Don’t do what doesn’t need to be done in 2015. Instead, take advantage of a strong economy, a healthy budget surplus and a divided government, and engage Minnesotans in designing the future while finding bipartisan cooperation to meet immediate needs.
Three bold actions are needed:
• First, as the Republicans are proposing, use a portion of the state’s surplus to fund the most pressing transportation needs. A lot can be done over the next two years by investing $200 million in new funds and reallocating unused transportation dollars to high-value, high-return projects.
• Second, keep new and increased taxes to a minimum. The budget surplus — one that likely will grow with the forecast due in February — can fund the most urgent and legitimate needs in early-childhood education, housing, health and other key areas. It could even provide a bump in a higher tax credit for low- and modest-income households who are paying for care for children and elderly relatives. Dayton’s budget proposal would make households earning up to $124,000 eligible for these tax credits; a lower ceiling may earn enough GOP support to actually pass a bill.
• Third, DFL and GOP leaders should make a commitment to undertake comprehensive tax reform in 2017. With the entire Legislature up for election in 2016, candidates and Minnesota voters would have a chance to weigh in over the next two years on how we want to be taxed and the priorities we want to establish in transportation and other areas.
There are added bonuses to this plan. Legislative campaigns that focused on drawing distinctions between DFL and Republican long-term vision for taxing and spending almost certainly would reinvigorate voters, pulling the state back from the dismal turnout in the 2014 elections. More substantive campaigns could mean less negative campaigns. That alone is a strong argument for thoughtful procrastination in 2015.
Tom Horner is a public relations consultant and was the Independence Party of Minnesota’s 2010 candidate for governor.