It had to happen, and who better to start the battle than Katherine Kersten, Culture Warrior Princess?
The state projects a budget surplus for the first time in years, and the Governor, the new majority leadership and most of the minority party in the Legislature are all talking responsibly and pragmatically about what the numbers really mean. They are cautioning that there's very little money here that could be spent for ongoing programs. And no one is doing a political victory dance.
Tom Stinson, the State Economist who does this for a living, says it's too early to tell exactly what accounted for the $1B rise in this year's tax collections. He did say on MPR that about $300M came from taxes on record corporate profits, which have little to do with state policies, and $500M came from mostly high earners paying more taxes than usual.
Until completing more research, Stinson has hedged about how much of this rise came from one-time capital gains, higher earnings from improved business conditions or manna from heaven.
But Kersten knows.
Why have business conditions improved? The hard work of Minnesota business owners and citizens has a lot to do with it. But so does a governor who grasped the importance of a low-tax environment. At the federal level, tax cuts initiated by President Bush also have helped.
Of course, if hard work and tax cuts cause improved business conditions and economic growth, all our problems should be solved now, right? Things should just keep getting better. But Stinson remains cautious:
At the same time, three national reports issued Tuesday contribute to Stinson's nervousness: Consumer confidence is at its lowest level in months, a troubling sign amid the holiday shopping season; demand for big-ticket manufactured goods is also declining; and the housing market is showing vulnerability, with median prices falling in many parts of the country and new home construction sagging here and elsewhere.
"Often times when we do the forecast there is one thing you point at and say `Here's the story,'" Stinson said. "Here, there are all these little pieces that are all important and all could rise up and bite you."
What Kersten also fails to acknowledge in her paean to Pawlenty and lower taxes is who really paid for balancing the budget. The Pawlenty administration diverted dedicated money from anti-smoking programs and health care coverage for low-income children; it failed to make a scheduled start on the worst, most persistent highway bottleneck in the state; and it shifted more costs for social services, schools and law enforcement onto local governments. Tuition costs grew faster than almost anywhere in the country. It levied a "health impact fee" which disproportionately gets paid by lower-income Minnesotans who smoke. And never mind the impact of federal tax cuts on the state budget.
At the same time as it lowered tax rates overall, Pawlenty & Co. continued the trend, shown in the chart below, of widening disparity among taxpayers. (Latest numbers available are from 2002, but the policies favoring higher earners have continued, as has a faster rate of income growth at the top. For much more on the latest state budget see the Minnesota Budget Project.)
But none of this matters to our Kate, who conjures up a demonstration at the Capitol for "welfare spending" (see the greedy losers with their hands out already?). And ignores Dan McElroy, a former finance commissioner under Pawlenty:
[McElroy says] the number the finance department puts out Wednesday comes with an important caveat. It doesn't take into account inflation in state programs due for reauthorization next spring. He avoids using the word surplus to describe the positive balance.
"Surplus implies psychologically that it's `extra money' – money that the government doesn't need, money that should go for tax rebates or tax cuts," he said, adding, "The money on the bottom line isn't extra or frivolous dollars. It's money that in the past would have been baked into the forecast for inflation."
In other words, there's precious little extra in that one-time $2 billion Kersten uses to refute the idea that the wealthiest could pay more taxes. Let's see how they teach economics in the Kersten home school:
For the Gang of 200, it's a teachable moment. These folks assumed that to get more money for government programs, you have to raise tax rates. In fact, to get higher revenues, you often need to lower tax rates and stimulate growth.
There's nothing new here, except Kersten's studied ignorance about what the budget blip means — so there's no good reason to respond again to her antipathy toward people who are able to look beyond their personal good fortune.
As for thanking Pawlenty, as Kersten demands, I thank him for having the wisdom and good grace not to celebrate when we still have real problems to solve.
Disclosure:
As one of the original 200 signers of the ad that has Kersten so bunched up, I am one of those she persists in calling a zillionaire, although I doubt my household income is very much different than the Kersten family's.
I am also an advisor to Growth & Justice, which Kersten mocks here, though not by name. The opinions expressed are mine.
This isn't the first time the state has ridden a temporary business cycle to a surplus.
