Across the Great Divide

Left and Right Ignore Some Tax Realities.

St. Paul Pioneer Press columnist and real-world economist Edward Lotterman writes about the complicated realities inherent in paying taxes and financing government.

Some on the left and right fantasize that the cleanup job is a snap. The left fantasizes that taxes pose no disincentives to economic activity. Boost taxes on corporations and the wealthiest few percent of people. Everything will be hunky dory.

The right has two dreams. First, that most government spending is frivolous waste that could be eliminated without slowing output or harming anyone but parasitic politicians and bureaucrats. Second, if we cut tax rates enough, the economy will grow enormously. Tax revenues will rise, eliminating any deficit.

Reality is more complicated. Consider government revenues from all sources except "social insurance and retirement receipts" - mostly FICA taxes. Take all government spending except for Social Security and Medicare. We spend roughly $1.8 trillion and raise $1.5 trillion. Borrowing funds 20 percent of spending.

Go one step further. Subtract federal interest payments and defense outlays. The remaining discretionary outlays total about $1 trillion. It is hard to close a $300 billion gap with cuts in that amount.

What's Love Got to Do With It?

"I love Minnesota," said Cooper, who took over a failing TCF Savings & Loan in 1985 and turned it into a profitable multistate bank. "Minnesota has been good to me."

– Star Tribune

Minnesota has been very, very good to Bill Cooper, who nonetheless nurses a level of disdain for its government that is more in keeping with drug dealers and al-Qaeda operatives.

He became a wealthy man, in large part by providing banking services to college students and lower-income Minnesotans. Now, he has departed for the Minnesota Riviera, Naples Florida, where he no longer has to pay income taxes on the proceeds and doesn't have to consort with the likes of those who put so much money in his pocket.

Which he has a perfect right to do.

We'll hear some point to Cooper's departure as retribution for Minnesota's high income taxes, and a great loss to the state. Just the beginning of millionaire flight. But Cooper is doing what retirees frequently do, heading to climes in the south and west that are kinder to old bones. In Naples, he can hang with his conservative peeps, never have his pet ideas questioned in the newspaper, and still play king maker as he entertains visits from Minnesota's GOP  politicians looking for a contribution.

Meanwhile, someone else will be paying the property taxes on his $11.5 million Lake Minnetonka mansion and presumably taking up the tax slack created by Chairman Bill's departure.

See, that's what happens if a state continues to invest in all its people, and not just the fortunes of a few.

 

An Old Lie Comes Back.

A popular and influential M.I.T. dean is exposed as a fraud. That is, she achieved her positions, transformed her university, wrote a book and likely changed hundreds of lives as an admissions director without ever earning any college degree.

Working in the admissions department or any other job in America, Marilee Jones might expect to earn to $26,933 — the current average income for high school graduates. A two-year Associate’s degree would have boosted her potential to $36,645. That she achieved far more is a testament both to her talents and the dubious need for an academic credential for many lines of work.

I'm not dismissing the value of higher education. I received a good one and am grateful for the random set of circumstances that sent me to the Midwest for college. But what I have learned since dwarfs whatever knowledge I amassed in those four years, and the learning opportunities I was able to find outside a formal setting have served me well.

Seeing some of my son's high school friends struggle still to pick their degreeless ways through the economy makes me wonder how many more Marliee Joneses labor at less than their potential. A college degree is an indicator of one's ability to persevere, to work within structure, to grow, but mostly it is a weeding tool that allows a company to focus on fewer candidates. I have rejected and hired enough job seekers to know the piece of paper marks a very thin and unreliable line between suitability and possible failure.

It was wrong of her to lie on her resume, and unforgivable at a university. But what have been the sins of those of us doing the judging?

A Shrinking Sea, a Tipping Balance.

The Salton Sea is an incongruous sight: a huge body of water in the middle of a desert.

And with good reason. California's largest lake was created purely by accident in 1905 when floodwaters from the Colorado River burst past a series of dams and settled in a naturally salty depression more than 228 feet below sea level.
– "California's Salton Sea Is Shrinking," LA Times

Well, "purely by accident" is one way to put it. "By stupidity and cupidity" might be another.

The Salton Sea's creation was abetted an early developer's vision to turn one of the most inhospitable places on earth, the Valley of the Dead, into the Imperial Valley. With irrigation from an unpredictable Colorado River brought back to its ancient delta, the Imperial Valley became one of America's most fertile agricultural areas. But not before an early snow melt took out temporary control gates and much of the early settlement.

The news report on the endangered Salton Sea, barely 100 years old, is far more than a tale of potential environmental loss. It is a preview of a much greater looming disaster — one that would make an al-Qaeda nuclear bomb inside the U.S. look puny in comparison.

That's because no nuke could devastate and depopulate the southwestern United States the way reduced snow melt, combined with increased settlement of the region would do. Our leaders see national security as a narrow matter of guns against ideology, when our way of life is much more threatened by a collapse of commerce and environment. And nowhere are we more vulnerable than in the west.

The Colorado River cuts a green oxbow around the Goose Neck on its way to meet the Green River in Canyonlands National Park. But this comparatively lush strip is a tiny anomaly in an arid, uninhabited land that stretches for hundreds of miles in any direction.

The Mormons declared the area around Salt Lake the promised land because it was unclaimed, and to continue traveling on their route west probably would've meant their extinction.

I was born at an eastern outpost of one of the world's more arid regions, where we have wrested pockets of civilization entirely based on the precarious promise of the Colorado River. Phoenix, Las Vegas, Los Angeles, San Diego and the Imperial Valley represent the western extreme.

As Marc Reisner wrote more than 20 years ago in the definitive Cadillac Desert:

If the Colorado River suddenly stopped flowing, you would have four years of carryover capacity in the reservoirs before you had to evacuate most of southern California and Arizona and a good portion of Colorado, New Mexico, Utah and Wyoming [...] [the Colorado] illuminates the neon city of Las Vegas, whose annual income is one-fourth the entire gross national product of Egypt — the only other place on earth where so many people are so helplessly dependent on one river's flow. The greater portion of the Nile, however, still manages, despite many diversions, to reach its delta at the Mediterranean Sea.

The news article talks about the shrinking Salton Sea as if it were going to be a disaster for fish and migratory birds. Proposals to address the problem so far have gone nowhere.

"If we dawdle around and don't go after this hard, we'll end up with a dead sea before we can fix it," warned Rick Daniels, executive director of the Salton Sea Authority, a coalition of local governments and agencies. "The fish will be dead and the birds will be gone."

Just for starters.

 

Why I'm Not Tax Blogging Today.

The notes on this bike trail, where I'm standing while taking this shot say: On this stretch, you may feel more comfortable walking.

I don't have any way to compare against the alternative, but I'd say the guide book was right.

But it was worth it.

Back to civilization again, which featured a brew pub that had good beer and excellent food, plus a dry cleaners that would be at home on any poor Caribbean island.

Bush's Brain or Bush Himself?

Barbara at Clothes Line Blog writes about the testy encounter over climate change between Sheryl Crow and Karl Rove at the weekend's White House Correspondents' dinner — and quotes from this statement in the New York Times account.

“She came over to insult me,” Mr. Rove said Saturday night, “and she succeeded.”

Mr. Rove did not respond to a request for comment on the women’s Internet posting on Sunday.

Tony Fratto, a White House spokesman said, “We have respect for the opinions and passion that many people have for climate change.” But, Mr. Fratto said, “I wish the same respect was afforded to the president.”

Unless I am missing something, Karl Rove is not "the president," even if he acts like it.

The Best Comparison is to Our Goals, Not Other States.

Lynn Edward Reed, executive director of the Minnesota Taxpayers Association, in an op/ed today disputes the implications of a Star Tribune editorial about Minnesota's revenue rankings relative to other states.

While bemoaning a drop in rank from ninth highest in total revenue per $1,000 of income in 1992 to 36th highest in 2004, the editorial doesn't ever say that this statistic proves taxes are low. In fact, taxes in Minnesota are still high. There is a difference between tax revenue and total revenue that is not immediately apparent after one reads the editorial.

True. State revenue also includes fees and transfers from the federal government. Minnesota is a relatively high income tax state and lower on other scores. Perhaps the distinction is important to the business-friendly Minnesota Taxpayers Association — not to be confused with the more aggressively anti-tax Minnesota Taxpayers League. But its members know when they make bank deposits separated into cash, checks and credit card transactions, the money totals the same. (Yes, I know about bank charges on credit cards, but this is a metaphor.) Customers/taxpayers pay either way.

I agree with Reed's larger point about the futility of comparing our spending to other states.

Frankly, using revenue rankings to evaluate state and local governments' spending doesn't hit the nail on the head. There simply is no empirically correct amount of spending. AFSCME Council 5 thinks revenues should increase in Minnesota, because those revenues pay their members' salaries and benefits. Others prefer to keep spending lower, so personal income will fuel the economy. The debate continues between the two opinions, and will continue, decided first one way and then another as part of the political process.

Anti-tax forces like to point to the high income tax number. In response, the pro-investment side emphasizes the total revenue per $1,000 of income. Generally, though, rankings are bunk, as I've written here and for the Test Tank.

As Reed concludes, what matter are results — or the effectiveness of our spending. Unfortunately, this is where the discussion too often falters after some initial nodding by all sides before they retreat to their entrenched opinions.

JOBZ Update.

On Friday, I posted about differing views of the Minnesota JOBZ program, noting that State Sen. Tom Baak was a one-time supporter turned vocal opponent.

Baak's office provided me a copy of a recent op/ed he wrote for the Duluth News Tribune, no longer available online, that spells out some of his objections.

The law is not administered the way we intended. It provides that tax benefits are for economically distressed areas. Instead, JOBZ tax breaks mainly go to businesses in the “collar counties” adjoining the Twin Cities metropolitan area and nearby regional marketing centers – the very places that are growing fast without incentives.

For example, when a large Minnesota firm “expanded” its operations with 73 jobs in a new “rural” plant just steps from the boundary of the Metro Area – it was touted as an “early JOBZ success story.” A few months later, they laid off 400 union workers at the Washington County-based main facilities.

Baak also says the program's subsidies are unfair to other other businesses and its subsidies are not creating enough high-wage jobs.

When communities hungry for new jobs give subsidies to businesses that locate “in the tax-free zone,” it is harder for their homegrown competitors located down the road in the taxpaying world to compete.

Minnesota should not use public money to subsidize employers paying less than a living wage. JOBZ was enacted to encourage high-wage new employment, but that is not the result. Because JOBZ benefits are so widely available, practically every private job in Greater Minnesota counts as a “JOBZ success.”

Free Advice on Avoiding Scams.

A civil servant has been invited to give a talk to a seniors group meeting in a local home. The topic: Consumer Fraud and Identity Theft.

As the speaker waited for the potluck portion of the event to conclude, it became apparent the club was also a religious group under the ministry of a man with a mismatched toupee and fondness for the sound of his own voice.

The pastor introduced himself to the speaker and said, "We need to discuss your honorarium."

"What honorarium? I don't want an honorarium, and I can't accept one anyway. I work for you," said the civil servant.

"You're doing this on a Saturday, out of the goodness of your heart?"

"Yes."

"Well, that's very unusual. But we always do an honorarium."

"Well, then give whatever I would've gotten to a worthy cause," said the civil servant, thinking the group must surely know some poor families or be affiliated with a food self or other charity."

"All right then," said god's servant,  "it'll go to 'Refuge,'" (which is not the real name). The civil servant figured it was some kind of shelter.

After the hymns, homilies and hour-long discussion about how to avoid various scams and financial crimes, the civil servant prepared to leave.

"Let's thank our speaker," said the pastor. "Now it's time for the honorarium. Does anyone have a hat?"

The seniors began pulling out their wallets and purses for the collection.

"Our speaker cannot accept an honorarium, so I have decided to keep it to buy gas for my Cadillac. It's a long way to here from Refuge" — which the civil servant now recognized as the name of a small town near the evangelical center of Colorado Springs — "and that Cadillac doesn't run on air."

The audience kept putting money in the hat.

Two of Our Boys Come Home.

The local high school newspaper asked four girls on the basketball team their opinions on the war. Two admitted to only lukewarm support of going into Iraq and both thought we've been there too long. Two others expressed pointed opposition. In this conservative community, where kids may rebel socially but tend to follow their parents' politics, that's a sign of a nation that has truly turned against the president's policy in Iraq.

The daily newspaper had three stories about young men in Iraq this weekend, only one of them hopeful. A wounded Marine, shot by a sniper, returned home after a month of therapy. I saw him at the airport where family and friends greeted his return. He looked good — strong and bright-eyed, the way all mothers would like their 21-year-olds to look.

Another story told of a mother who is walking from California to Wyoming, where her Marine son, killed in Iraq in 2004, is buried. She's raising money for soldiers wounded in the war.

The most heartbreaking story tells of Wade Oglesby, who was killed last week when driving a Humvee hit by an IED. Oglesby's father left the family when he was eight, and he reportedly took over the care of his sister and mother, who had heart disease, eventually dropping out of school to care for her full-time until she died in 2003.

It was only after that, at age 22, Oglesby learned to drive.

He was an awkward, socially arrested young man who decided to make something of his life and enlisted in the Army in 2004. By the accounts, service in the military helped him come out of his shell, make friends and gain confidence in himself. He was driving the lead vehicle in the convoy on a supposedly safe street north of Baghdad when he was killed.

After 27 years of putting family and country ahead of himself, Oglesby, whose tour had extended to October, had said he was ready to be out of Iraq and back in the U.S.

Now he is.