Fiscal Crack: Just Say No

As a public service, the Minneapolis Star Tribune’s Editorial Board offers an alternative plan in its Sunday edition to counter the budget proposed by Minnesota Governor Mark Dayton (“A better state budget omits services tax”).

I suppose it had to come to this, sooner or later.  In an era of one-party rule—in which the legacy media pointedly ignore the actual political opposition (the Republicans, remember them?)—the only constructive alternative would have to be offered by…the legacy media.

Compared with the dog’s breakfast budget offered by Governor Dayton—with its $ billions in tax hikes, spending increases, social engineering, and deck-chair shuffling—any constructive alternative would have to look better.

The Star Tribune makes some useful suggestions: eliminating business-to-business sales taxes, reducing the income tax hikes, and calling for slightly less overall spending.  Unfortunately, the Star Tribune never questions the basic assumptions underlying Dayton’s “blue state” approach to governing.

 

Fiscal Crack
Author Joel Kotkin wrote last week on Forbes.com about how blue states—he mentions Minnesota by name—are doubling down on the suicidal strategy of higher taxes and more spending.   Kotkin writes about how some of the more innovative red states are experimenting with lower taxes and real tax reform.  Kotkin adds,

“The contrast with the blue states—not so much those who voted for Obama, but those controlled totally by Democrats—could not be clearer.  They appear to have chosen an economic path that essentially penalizes their own middle and upper-middle class residents, believing that keeping up public spending, including on public employee pensions, represents the best way to boost their economy.”

As Kotkin points out, this strategy may produce short-term gains for state finances, but reliance of what he terms “fiscal crack” leads to no good end,

“For a short period there’s euphoria, as tax revenues flow in and the economy seems to recover.  Yet the real problems, such as inadequate private-sector job growth, are never addressed, and as the high fades, the state again faces a loss of jobs and people.”

Other blue states that have followed the tax and spend strategy have found that the revenue hike is, at best, a one-time fix.  Revenue bumps up to a new plateau, but then falls away as taxpayers leave or adjust their behavior.  The associated spending becomes permanent, increasing with inflation, non-taxpayer population growth, and inefficiencies, even as the revenue falls.
My own modest contribution to this debate involves eliminating the state income tax altogether, in the manner of Washington state, a state with impeccably blue credentials.

The Star Tribune could offer a greater public service by examining the basic assumptions underlying the budget.

How Much is Enough?

Is $37.9 billion the “correct” amount needed to run state government for two years?  Or the $37.7 billion that the paper recommends?  As I mentioned earlier on Twitter, since we have no idea of what we are trying to accomplish with state government, we have no idea of what the correct of amount of money needed.  Let’s start with well-defined needs, and then build up to a budget number.

How Fair is “Fair”?

How important is “fairness” in tax burden?  I won’t rehash the entire taxing the wealthy fallacy here, but Minnesota’s economic structure needs to be based on more than an off-hand observation about who pays what proportion of property taxes. 

The left-leaning Institute on Taxation and Economic Policy (ITEP) publishes an annual state ranking of tax fairness.  The 2013 edition indicates that Minnesota ranks in the middle of the pack, neither one of the ten most regressive states nor one of the five most progressive.  Our state ranks above the national average on tax “fairness” and in only 14 other states do the infamous “1%” pay a higher proportion of their income in taxes.  So, really, how bad is the problem we are trying to solve?  It is worth it to upend our economy just to move from the top 15 to top 10 on the progressivity scale?

Electing a New People

All in all, the Star Tribune’s proposals smooth the edges, to some extent, of a bad proposal.  But I fear that the paper misses the larger point of Dayton’s exercise.  Joel Kotkin discusses how tax impacts have affected migration patterns,

“Last year, all ten of the leading states gaining domestic migrants were low-tax states including five with no income tax: Texas, Florida, Tennessee, Washington and Nevada.  In contrast high-tax New Jersey, New York, Illinois and California suffered the highest rates of out-migration.”

And who is moving?  Kotkin reports that it’s the middle and upper-middle classes that are hitting the road, taxpayers that “although affluent, are far from billionaires.  Between 2006 and 2009, California lost a net 45,000 taxpayers earning between $5 million and $300,000 a year.”

In other words, it’s most likely losing voters with an incentive to vote Republican and the means to support Republican candidates.  If you were a Democrat Governor and set out to craft a set of taxing policies for the purpose of appealing to your progressive donor and volunteer base and encouraging your opponent’s donor and volunteer base to pack up and leave, I don’t see how you would have done anything different than what Gov. Dayton proposed last month.

I’ve written about the idea of "political cleansing" in the context of core cities.  It appears as if Dayton has extended the idea to the whole state.  The fifty-state policy experiment underway that Kotkin describes is producing the side effect of Americans sorting themselves out, not just economically, but also politically.