Norm Coleman has made permanent across the board tax cuts the centerpiece of his campaign. On his Web site he says “Minnesota moms and dads need more money in their pockets at the end of every week.” This is a nice sentiment, but seems implausible. If this was a practical option, why didn’t our current governor Arne Carlson — a Republican who’s as fiscally tough as they come — ever promote such a plan? Probably because he considered some of the possible ramifications.
Like most “let’s cut taxes to help hardworking people” candidates, Coleman says nothing about raising the minimum wage, which would accomplish the same goal. Rudimentary economic theory says that a sudden and large influx of money into the economy will cause inflation. This is true whether the money comes from higher wages or tax cuts. However, there are three important differences that make tax cuts much worse for working-class people.
First of all, if you make less than $20,000 a year, the income tax cuts probably won’t make much difference. You will, however, have to deal with the subsequent inflation.
Second, even if inflation doesn’t shoot up — which is plausible — buying power increases would be temporary. The free-market rate for employee compensation is based on their take-home pay, not the gross pay. Contractors that offer a “cash discount” (i.e. unreported and untaxed income) for their services illustrate this fact. Your current employer won’t cut your salary, but when you change jobs, competitive salaries will reflect this adjustment in your take-home pay.
Finally, when you get laid off and seek retraining while the economy struggles — and it will, based on its cyclical nature — you may find retraining programs have been cut substantially due to an eroding tax base. A limited tax base ensures no new programs will pass Coleman’s “can we afford it?” litmus test. You may have to move back in with your parents or scramble for, and get stuck in, any crummy job just to pay your rent.
Budget Surplus
Coleman says the existence of a budget surplus proves we are overtaxed. He’s acting like a local politician taking advantage of a good national economy.
Ironically, the nation’s economic boom, which has benefited Coleman’s reign as St. Paul Mayor since 1994, began s the result of President George Bush breaking his “no new taxes” pledge. Coleman doesn’t see this. He also forgets that he borrowed millions of state dollars to revitalize St. Paul.
Our state’s surplus is the result of our high per capita income, the fourth highest in the nation. Our high tax burden is directly related (we’re number six!). Income tax and sales tax make up the lion’s share of the state’s revenue. In addition to bringing in additional income tax revenues, higher than expected incomes result in more consumer spending and increased sales tax revenues. In other words, we’re doing better than anyone could imagine. We should remember how fast a surplus can dry up when the economy falters.
Targeted Tax Cuts
Coleman correctly identifies Skip Humphrey’s targeted tax credits as new government programs. Coleman criticizes Humphrey for rewarding specific behaviors, such as investing in a child’s education ($1,000 per year) or taking care of your grandmother in your home ($500 per year) with tax credits. What Coleman ignores is that these tax breaks are a good thing. The recent capital gains tax cut encourages people to invest in the market. Making mortgage interest tax-deductible encourages home-ownership. Furthermore, Coleman has proposed his own targeted cuts, like eliminating the “marriage penalty” tax.
Ever since Walter Mondale promised to raise taxes in his 1984 presidential bid — and subsequently suffered the worst defeat in history — politicians have consistently promised tax cuts, but raised taxes anyway. These politicians represent a wide array of ideologies, but they all believed government should actually do something and deployed tax increases to help accomplish their specific goals.
But Coleman has actually berated Humphrey for even considering anything other than permanent tax cuts. That’s because, aside from tax cuts and a newfound disdain for government, Coleman’s campaign is bereft of ideas and specific goals.
Humphrey is the only candidate who has a plan of action ready and has not pretended that social issues are irrelevant. Vote for Humphrey.
Ed Day is a copy editor and freelance writer for the Daily. Send comments to [email protected]