The Minnesota Budget Crisis, and the Federal Budget Crisis, What Do They Have In Common?

The Right wrongly repeats ad nauseum the mantra that we don't have a revenue problem.

They claim it about the federal level, and they claim it about Minnesota.

The Right is, no surprise considering their disastrous economic policy results, are consistently and spectacularly WRONG.

Had the Bush tax cuts not been made, government would be in far better shape. 

Without numerous bad choices, including Republican driven changes like the Republican sponsored Republican passed Gramm-Leach-Bliley Act which replaced the Democratic driven Glass-Steagall Act of 1932, our economy would be in far better shape.

The Right doesn't want to tell the truth about the effects of what they did in the past, and they don't want to tell you the truth about what their policies will do in the future either.  All they want to do is to benefit their big money donors at the expense of the overwhelming majority of the people in the United States. 

This post was inspired by my something my friend,  Laci the Chinese Crested said yesterday, "Business doesn't care about creating jobs.  Business just cares about making money.", as part of a larger conversation about the pervasive ignorance of economics that occurs in politics.

All that empty talk about caring about future generations is garbage, it is insincere, it is bullshit.  It is trying to put lipstick on their political pig.  They just want to continue the headlong shift of money out of your pockets into the pockets of those already wealthy, while handing you the bill for everything.  Just giving the wealthy money does that and nothing more; it give the already wealthy more money, nothing else whatsoever.

Want to see what will happen to us if our electorate believes the false message from the Right?

and

The insistence of the Right on doing the same things at the state level in Minnesota that they are trying to do at the federal level is profiled here.  The Right has been inaccurate and dishonest about the impact of their budget proposals on our state.  Giving the wealthy more money, through either tax cuts OR subsidies will DO NOTHING to improve our economy, much less generate job creation.  The wealthy top percent is already holding more money than ever, and have done very little.  Corporations are holding more money than ever, and very few of them are doing what the Republicans claim for that money; giving them  more will not do anything either.


This article, from the non-profit non-partisan think tank Center on Budget and Policy Priorities impressed me by how it looked at the issue of revenue and tax cuts.:

Promoting State Budget Accountability Through Tax Expenditure Reporting
     By Michael Leachman, Dylan Grundman and Nicholas Johnson, Updated May 17, 2011
Each year states spend tens, maybe hundreds, of billions of dollars through “tax expenditures.” Tax expenditures are tax credits, deductions, and exemptions that reduce state revenue. They can include everything from poverty-reducing tax credits, to middle-class benefits, to corporate subsidies. Tax expenditures cost state treasuries money in much the same way as direct spending for schools, health care, or road construction. And like direct spending, tax expenditures are a tool states can use to accomplish policy goals.

There is a key difference, however, between direct spending and tax expenditures. States typically require extensive documentation of how much direct spending they do each year, and their budget processes entail evaluation of each item. Tax expenditures usually receive far less scrutiny. For the most part, policymakers do not regularly examine tax expenditures, nor do states document their effectiveness the same way they do for on-budget expenditures.

This is a serious problem. Most tax expenditures are written into the tax code and thus will continue indefinitely — regardless of how costly they may become over time — unless the legislature acts to discontinue them. (Appropriated expenditures, by contrast, typically last only as long as the one- or two-year budget cycle.) Without information on a particular tax expenditure’s costs and benefits, lawmakers cannot make an informed decision on whether its continuation is in the state’s interest.

More broadly, if policymakers, the media, and the general public lack information about tax expenditures, they cannot fully participate in decisions about how to allocate state resources. In fact, in many states the policy debate encompasses little more than half of the state’s total expenditures because expenditures made through the tax code are not part of the conversation.

So not only do the Republicans NOT address the serious issue of revenue, which is not a dirty word, but the way they install their measures which benefit their wealthy donor base becomes far more entrenched for future years.

In contrast, the Minnesota Budget Project notes, correctly, how the current budget bill works, examining tax EXPENDITURES:

Legislature’s tax bill demonstrates that it isn’t whether we will raise revenues, but how

The legislature’s compromise tax bill demonstrates that it isn’t a question of whether revenues will be raised, but how. The Department of Revenue estimates that property taxes will rise $534 million in FY 2012-13 and $693 million in FY 2014-15 if the legislature’s tax bill becomes law. The two primary factors contributing to property tax increases are deep cuts to property tax refunds for renters and significant cuts in state aids to cities and counties. Those estimated property tax increases are even after taking into account a cut in the state property tax paid by businesses and cabins and a $30 million increase in the state Property Tax Refund for homeowners, commonly called the Circuit Breaker.

The omnibus tax bill (formally the conference committee report on House File 42) follows the same themes as the original House and Senate tax bills. It includes $203 million in new tax cuts in the FY 2012-13 biennium, which include:

o Gradually eliminating the state property tax paid by businesses and cabins. The cost of this provision grows over time, starting at $50 million in FY 2012-13 and $119 million in FY 2014-15. There isn’t an estimate of the impact when the state property tax is fully eliminated in 2025, but if it were fully eliminated in FY 2012-13, the cost would be $1.6 billion, about five percent of the state’s general fund revenues.

o Accelerating the state’s transition to Single Sales Factor, where the apportionment formula for corporate taxes will be based solely on a multistate corporation’s share of sales made in Minnesota. Going to Single Sales Factor in 2012 instead of 2014 has an additional cost of $18 million in this biennium.

o Conforming to a number of federal tax changes in the 2011 and 2012 tax years, at a total cost of $122 million. The largest conformity item increases the standard deduction for married income tax filers.

o A few tax cuts that don’t start until the next biennium, including an income tax exemption for military retirement pay at a cost of $24 million in FY 2014-15 and adding private school tuition to the list of authorized expenditures for the state’s K-12 education credit at a cost of $11 million.

In order to pay for the new tax cuts and address the state’s revenue shortfall, the tax conference report makes $925 million in spending cuts in FY 2012-13 and over $1.2 billion in FY 2014-15. In all, the “Property Tax Aids and Credits” part of the budget is cut by 26 percent compared to base funding in FY 2012-13 and 35 percent in the following budget cycle.

o The Renters’ Credit – the state’s property tax refund for low- and moderate-income renters – is cut by $186 million, a 46 percent cut compared to base funding. Households that include seniors and people with disabilities face an average cut of $190 and other families can expect an average cut of $335. About one in four currently-eligible households would no longer quality for a property tax refund.

o Local Government Aid to cities is cut by $310 million in FY 2012-13 and $452 million in FY 2014-15. Duluth, St. Paul and Minneapolis are cut by 25 percent each year until they lose all aid in FY 2015. For other cities, the bill essentially locks in the cuts that were made last year.

o County Program Aid, which is received by all counties, is cut by $73 million. This is in addition to cuts to specific funding streams in other budget bills that will impact counties’ ability to provide services in their communities.

o The bill cuts the state’s Market Value Credit reimbursement to local governments by $104 million in FY 2012, and starting in FY 2013, replaces the Market Value Credit with a reduction in the tax capacity of homes, saving the state $261 million. (We’ve described this proposal in more detail in an earlier blog.)

o The bill eliminates both the Political Contribution Refund, which is part of the state’s campaign finance system that reimburses Minnesotans for small donations to candidates and parties, and the Sustainable Forest Initiative, which reimburses landowners for sustainable forest practices.

The tax conference report also contains transfers from other funds into the state’s general fund, including the remaining $8.7 million from the Budget Reserve, $166 million from the Cash Flow Account, and $60 million from the Douglas J. Johnson Economic Development fund, which had previously been debated in the Economic Development bill.

The tax bill is currently on the Governor’s desk. It is expected that he will veto the bill, given the expected increases in property taxes from the local aid cuts and deep cuts to the Renters’ Credit.
-Nan Madden