Thursday, January 19, 2006

Caveat emptor when making structural repairs to Minnesota's fiscal house

Posted by Craig Westover | 9:50 AM |  

State Sen. Dick Cohen (DFL - St. Paul) joined the list of Democrats trying to paint his party as THE party of fiscal responsibility with an OP-ED piece in Tuesday Pioneer Press. His logic is somewhat baffling, but let’s give it a try.

First, he takes not altogether unjustified potshots at the Pawletny administration and Republican claims of having put Minnesota’s fiscal house back in order. Cohen notes that the budget surplus disappears after school loans are repaid and inflation is accounted for. To help balance the budget, the state borrowed from the Tobacco Trust Fund. There’s the controversy over the legality of the fee/tax on cigarettes.

Cohen keeps going. He notes that under Pawlenty many taxes due to expire were continued, pre-payment of sales saxes bolstered short-term revenue and “fees” collected by the state have gone up by nearly half a billion dollars. Property taxes are up.

With some nit picking here and there, many conservatives, including the Taxpayers League of Minnesota, have criticized the Pawlenty administration on many of these same points, which reinforces my view of one difference between conservatives and liberals -- Conservatives go wrong when they abandon their principles; liberals go wrong when they follow their principles. Case in point, the money quote from Cohen’s OP-ED:
Finally, through years of painful budgeting we've seen little real reform. Opportunities arise out of crises, and we've missed some good chances. If our state is to be stronger, we need to do more than cut budgets. We need innovation and new thinking. We could start with our tax structure: Until we get reform there, we're doomed to move from crisis to crisis as the economy goes up and down.
In that quote, Cohen reverts to traditional liberal principle -- it’s not the increase in taxes that bothers him, it is where the taxes are coming from. From whom the state extracts revenue is what, according to Cohen, we need to reform. "Reform" is about finding new review to maintain the same or increased levels of spending, not changing how we think about the functions of government. Says Cohen:

It is important to take a clear look at where we are and where we need to go — together — as a state. We should put aside the misleading rhetoric. We should hold an honest discussion about how we can invest wisely so our state will keep its long, hard-earned reputation as a good place to live and do business.
I’m going to go out on a limb here and read between the lines and speculate that Cohen’s idea of “reform” means taking a greater percentage of taxes from the wealthiest Minnesotans. Okay, go for it in the name of “fairness,” “social justice,” or the more honest “socialism,” but don’t call it “fiscal responsibility.” Cohen observes --
Minnesota's economic recovery lags behind the national recovery for the first time in memory. Job growth is slower here than in other parts of the country.
Shouldn’t we ask why?

When a state’s revenue system is based disproportionately on taxes on the wealthiest individuals, a recession disproportionately impacts state revenues. Look at the logic. Much of the taxable income of wealthy individuals comes from investment income. When the economy slumps, investment income drops and so too do the taxes collected on that income.

That’s not a plea of sympathy for the rich. Those of us that find Hamburger Helper quite tasty without the hamburger have little sympathy for those shopping for “Lobster Helper” to see them over the rough times. The point is, if you’re going to run the state on the backs of the wealthy, then be prepared for deeper recessions and longer recoveries. It’s the price of class envy and the height of fiscal irresponsibility.

Simply citing what even many conservatives regard as fiscal slight-of-hand on the part of Republicans is not justification for assuming that Democrats have the answer. In fact, their solutions, because they are based on their underlying socialism perspective, are far worse.

While DFLers like Cohen salivate at the fiscal nudity of some current administration policies, let’s hope that fiscal conservatives in the legislature have the courage to admit the emperor has no clothes and quickly weave a wrap of fiscal policy sewn tightly with sound conservative principles and save Republicans further embarrassment.

Category: Local Politics, Tax Policy