Rebates, tax cuts come at state’s expense

Sales tax rebates. Income tax cuts. Property tax cuts. Car license tab-fee reductions. On the heels of the largest tax cuts in Minnesota history last year, once again the Legislature is quibbling over how much of the budget surplus to return to taxpayers as a sales tax rebate or in permanent tax cuts. Republicans want more aggressive tax cuts, whereas Gov. Ventura and DFLers want to spend more on transportation and public schools, but they all agreed on some form of tax relief. The only question is the amount.
Considering all the projects former Gov. Arne Carlson put off because of recession-induced fiscal constraints, sweeping tax cuts and rebates shouldn’t even be on the agenda.
One needn’t look any further than the University’s current $23 million “budget gap” between the cost of running the University and incoming revenue to realize the government isn’t spending enough on its fundamental responsibilities, despite the better-than-expected biennial budget in 1999. This year House Republicans and Ventura have proposed laughably small and inadequate capital-bonding bills. The Senate proposal is twice as big as Ventura’s but still represents only about 75 percent of the University’s request.
Ventura might have set the tone toward higher education during a January 1999 visit to the University. The governor jokingly told University President Mark Yudof “maybe we ought to get the tuition guys in order,” in an attempt to scrutinize higher-education officials for irresponsibly spending money. In doing so, Ventura ducked the issue of state funding and ignored evidence from a recent legislative auditor’s report that attributes almost all tuition increases above inflation to decreased state funding, not mismanagement by university presidents or huge staff salaries. (University salaries rank ninth in the Big Ten.)
But statistics and common sense take a back seat to those salivating for more tax cuts and rebate checks. Tell them tuition has risen about three times faster than the consumer price index, and they will ignore it.
A letter in the March 21 Pioneer Press argues for tax cuts right now to make sure programs that help people through hard times (job training, day care subsidies, etc. — programs Ventura doesn’t directly benefit from) never get in place, because he fears the economy will eventually go south.
While the latter assertion is true, his warped rationale for not spending now is all too common. Essentially, he thinks legislators would raise taxes to keep the programs going when the economy bottoms out. There are several flaws in this logic:
First, even when absolutely necessary, raising taxes is never a popular initiative. The only acceptable tax hikes are the so-called sin taxes on tobacco and alcohol. Unfortunately, Carlson already raised them to the point where another increase could cause a riot.
Second, increasing taxes on an economic downturn does not effectively raise revenue. When the economy sours, people lose their jobs and don’t spend much. The primary sources of state revenue are income tax and sales tax. Our current tax burden is directly related to our per capita income, which ranks high nationally.
Third, legislators look for alternative revenue sources when the going gets tough. For the first six years of the Carlson administration, tuition was considered a revenue source while he basically froze higher-education funding to get through the recession. Public colleges endured tuition increases approaching double digits, cut corners on faculty and staff salaries, delayed technological upgrades and increased student-services fees to weather the storm.
Now the state has the money, and higher education is once again getting snubbed in favor of politically popular tax cuts.
The Republican proposal even has a catchy name — “Lunch Bucket Tax Cuts.”
“Moms and dads will have more money in their pockets and less going back to state government,” House Speaker Steve Sviggum, R-Kenyon, told the Minneapolis Star Tribune on March 21.
This makes a fantastic sound bite, but the Minnesota Citizens for Tax Justice estimate a whopping $52 average tax cut for families earning less than $45,000. Wow, that’s a whole dollar each week. Prudent parents could treat one of their children to an extra pack of Lunchables every other week with that kind of dough.
The simplistic notion that decreasing taxes actually puts more money in our pockets should be taken with a grain of salt no matter how many people extol its virtues.
“Parents are trying to save for their children’s college education, couples are trying to save for their retirement and some people are just trying to pay their monthly bills,” said Aaron Hall, Minnesota Family Council spokesman.
Hall’s sentiment stems from his organization’s desire to improve the well-being of families. However, low tuition helps families. Good area theatres, museums and recreation facilities help families. Families benefit from a good transit system. More affordable housing, which could be as simple as subsidizing contractors to build the Twin Cities out of its current shortage — which has artificially driven up prices — and letting the law of supply and demand take over would also help families.
Organizations with resources are buying television and radio advertising time to promote tax cuts and drill home the simple message of more money for the average taxpayer. The Coalition of Minnesota Businesses has bought a good deal of television air time advocating lower taxes. Republican Party officials have bought 60-second radio spots claiming the state is overcharging the public by “about $1,000 per taxpayer.” Just before the 1998 elections, the Minnesota Family Council ran television ads calling for legislators to return the surplus.
Although the rhetoric is intense and endearing, the short-term gratification of a rebate check pales in comparison to what the money can do collectively. People who make $60,000 per year stand to gain about $600 from the proposed combination of tax cuts and rebates. That’s $50 a month, and the rebate/tax cut package decreases accordingly with income.
Higher education isn’t the only casualty of tax-cut madness. Ventura could have used last year’s rebate to subsidize his light-rail initiative, build more lanes on the highway, clean up the environment, contribute to the Make-a-Wish Foundation or endow any worthy, ongoing endeavor. By allowing our elected officials to pander to our most immediate desires by dangling cash in front of us during this time of economic prosperity, we have lost out on a great opportunity to collectively create the future of our state.
Ed Day is a Daily columnist. He welcomes comments at [email protected]. Send letters to the editor to [email protected].