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Legislative News and Views - Rep. Linda Runbeck (R)

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What consequences loom in new budget?

Friday, June 28, 2013

By Rep. Linda Runbeck

On July 1, the wheels of our state government turned to embark on an experiment in progressive taxation and spending not seen in a generation. July 1 marks the first day of the 2013-2014 state budget cycle in which Republican fiscal restraint gives way to DFL taxing and spending improvidence. With nary a Republican vote, Gov. Mark Dayton and the Legislature authorized $2.3 billion in new taxes (only $627 was needed to fix the dwindling shortfall) and commited to roughly $1.6 billion in new spending!

How will this budget change Minnesota? What unintended consequences loom? We can predict what happens when government expands faster than the underlying economy. This budget increases 8 percent over the current budget while economic growth is predicted to increase only 3-4 percent. We can also predict what happens when Minnesota imposes new taxes (costs) on one industry such as warehousing. But it may take several years to realize the price we’ll pay.

Minnesota’s economic performance is robust compared to other states leading many to question the need for such an ambitious new direction.

According to a recent State Policy Reports study, Minnesota ranked sixth in economic performance, third in personal income growth and seventh in employment growth! Hiring in May showed a sharp uptick. Even the governor’s state-of-the-state address spoke to the myriad measures by which Minnesota is a leader compared to the 49 states.

These positive reviews place into question the DFL’s loud laments that Minnesota has “not been keeping up” (a phrase heard repeatedly from the special interest spenders), that our competitiveness is lagging in areas of education and transportation and workforce quality. These positive stats also place into question the need for $2.3 billion in new taxes confiscated from the productive job-creating sectors of our state’s economy.

Other questions abound. The new taxes are taken from three narrow sources, high income earners, business sources and cigarettes. This was to achieve the DFL’s criteria that taxes must be “progressive”, or if regressive, as in the case of the cigarette tax, it should have a desired social effect. Will these tax sources produce the revenues projected? Higher cigarette taxes in other states have not (due to boot-legging and/or purchasing across state lines). Higher income taxes on the rich may also prove to be elusive as these dollars may be capital gains income, and tax avoidance strategies will kick in.

The warehousing industry in Minnesota provides an immediate example of how bad tax policies work. A last-minute addition to the tax bill imposed a 6.875-percent sales tax on the warehousing industry which no other state has. Already, companies such as Red Wing Shoes are indicating that they may not expand in Minnesota thus costing us jobs and yes, the projected sales tax revenue.

As a fiscal conservative, I think it’s more important to ask, “What will be improved by this new spending”? Will new spending reverse the minority achievement gap? Will new spending improve graduation rates and teacher quality? Will new spending eliminate the skills gap that exists in our workforce? Or are we back to spending for the sake of spending—and growing government for the sake of growing government because that's what the special interest groups that successfully elected Governor Dayton are demanding?

Finally, the Democrats claim success at “structurally balancing” the budget by ending 2014 with a small $68 million budget surplus. They’re mum, however, about the spending “tails” showing up in two years for the 2015-2016 budget. Tails are the automatic inflation increases resulting from this year’s decisions, and they’re scheduled to require another $2.3 billion in new spending, for a total budget of $41 billion. Will state tax revenues be able to climb that high? If they don’t, we’ll back into another deficit – and surprise, another round of tax hikes.

Yes, indeed, the ship of state is making a sharp turn in direction. Let’s hope it will be good for all Minnesotans.

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