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Schminke: Was $2.1B in tax increases really necessary?

Published 5:03pm Saturday, June 28, 2014

By Dennis Schminke

House 27B Republican candidate

Rep. Jeanne Poppe and Sen. Dan Sparks recently reviewed session achievements in a summary appearing in the Austin Daily Herald. In this piece we want to present an alternative view. In fairness, good work was done this session with broad bipartisan support in many areas. However, with one-party rule in St. Paul for the 2013-14 sessions, bills were passed that will not be good for the people of the state — particularly for us here in Greater Minnesota. Foremost among these are the DFL approaches to taxing and spending.

Minnesota’s economy is enjoying a tailwind. For our state government, this strength has manifested itself in the form of a veritable gusher of increased revenues flowing into the treasury, placing the need for further tax increases into the category of questionable. Here are some things they didn’t tell you.

To understand where we are today, it is helpful to review some recent Minnesota budget history. The 2008-09 economic collapse and ensuing recession were devastating to our state’s economy. Minnesota’s working families were hard hit by falling incomes and higher unemployment. Revenues flowing to the state were greatly reduced. Working Minnesotans were hurting, and our state’s budget was not spared the effect. During the 2010-11 budget cycle, for example, there were times when revenue projections fell by more than $6 billion — 17 percent — from early projections made by the Minnesota Office of Management and Budget (MN-OMB).

Throughout this time of extreme hardship, Minnesota government was under divided control. We had both DFL and Republican governors, along with shifting majorities controlling the house and senate. The legislature and the governor struggled to balance the books. At times it grew quite contentious, but the resulting hardship was dealt with in a responsible manner through compromise. No one was happy about the dire circumstances or the decisions they required but state government eventually did the same thing Minnesota’s working families did: review priorities, fund the important things, cut back a little here, delay a little there, and shift dollars from one place to another until times improved.

Fast forward to 2013 and the beginning of the most recent legislative sessions. Economic prospects for Minnesota were improving. MN-OMB revenue projections were finally exceeding pre-recession levels — up more than 18 percent from the dark days of 2010-11. About this same time the 2012 elections gave the DFL total one-party control of Minnesota state government for the first time in many years.

Much has been made of the projected budget deficit of $627 million said to be facing the legislature at the beginning of the 2013 session. It is important to know that it was a somewhat fictitious number. We should remember that it is only in the curious language of government that a small reduction of an inflated baseline budget is called a cut. The fact of the matter is that from the start the legislature had a lot of additional dollars to work with — nearly $3 billion more than the 2012-13 baseline. They also had a choice — to make a few judicious cuts to balance the spending budget to match the anticipated revenues, or to raise taxes.

They chose to raise taxes — by a lot, and unnecessarily so — an additional $2.1 billion dollars in 2013. Minnesota’s economy continued to improve into 2014 and revenue to state government continued to grow. By the time the February 2014 MN-OMB forecast was released, revenue for the 2014-15 budget cycle was pegged at a phenomenal $39.5 billion — nearly $6 billion over the 2012-13 baseline (this amount includes the $2.1 billion tax increase). Also of interest is the fact that the combined effect of revenue recovery along with the tax increase resulted in a $1.2 billion surplus.

Predictably, a spending blowout has ensued— from an estimated $34 billion in the February 2012 MN-OMB forecast — to roughly $39 billion in the February 2014 forecast. This is an increase of more than 14 percent in just two years — said to be one of the largest increases ever for our state government. Eventually added to this will be the additional supplemental spending bill passed in the 2014 session. Yes, it’s true; the DFL-controlled legislature spent the majority of their projected $1.2 billion surplus rather than give it back to Minnesota’s taxpayers.

One final footnote should also be addressed. The DFL has asserted that they cut taxes in the 2014 session. This is stretching the truth. From a tax standpoint, the 2013-14 sessions are correctly viewed as a single unit. Here is the truth of the matter: By 2014, Gov. Mark Dayton and the DFL-controlled legislature knew they had gone too far with the 2013 tax increases, and early in the 2014 session ‘un-did’ some of their more unpopular work. A more accurate statement is that the net tax increase on hard-working Minnesotans for 2013-14 was roughly $1.6 billion dollars.

All of these are important background facts to consider when judging the merits of the 2013 and 2014 sessions. Here are important questions which need to be asked:

• Is the legislature doing its job properly when it fails to make the decisions necessary for state government to live within its means rather than raising taxes — especially when these means have grown rapidly due to a recovering economy?

• Is the legislature acting responsibly when it raises taxes rather than making sure existing revenues are well spent?

• Are the people of the state better off when required to put their money in the hands of the state rather than making their spending, saving, or investing decisions as they see fit?

• Is the legislature properly considering the long-term effects on economic growth and job creation caused by their high-tax/big-spend policies — regardless of the sources of the dollars?

The answer to each of these questions is a resounding “No.” In future columns we will take a look at some reasons for that answer. We will also explore other important state-government issues as well.

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