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Minnesota Free Market Institute | P.O. Box 120449 | St. Paul | MN | 55112
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Minnesota Free Market Institute | P.O. Box 120449 | St. Paul | MN | 55112
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Yesterday the USA Today reported the National Debt at $546,668 per household, including a 12% increase in 2008 alone. According to White House documents, the budget won’t run in the black until the year 2012 (PDF pg. 26). However, that increase in revenue is predicated on a 21% increase in GDP between 2009 and 2012 (PDF pg. 29), a particularly rosy scenario given the current circumstances.
“Bottom line: The government took on $6.8 trillion in new obligations in 2008, pushing the total owed to a record $63.8 trillion.”
Read the whole USA Today article here.
Both legislative leaders and opinion leaders have criticized Gov. Tim Pawlenty for “not compromising” with the legislature-for refusing to increase marginal tax rates. But as citizens are making do with less, it’s time for state and local governments to do the same.
Let’s review a few of the ways in which the recession is already affecting people in the private sector-that is, people who pay for government.
We’re getting pink slipped. Nationally, unemployment is at a 25-year high, and the possibility statistic may increase is haunting everyone who is not a government employee.
We’re taking furloughs. Companies that prefer not to lose workers, especially highly skilled ones, are using furloughs. A survey earlier this year by the firm Watson Wyatt Worldwide Inc. found that 17 percent of companies had used furloughs. Some companies are using both furloughs and other temporary pay cuts, together with layoffs, to survive the recession.
We’re watching our dollars and buying less. We’re shopping less at Best Buy and more at Wal-Mart, replacing vacations with “staycations,” and repairing consumer products rather than replacing them.
On the other hand, the recession isn’t so bad if you work for government. That’s because it has been a tale of two workforces, one subject to the vagaries of the market and the other not. Steve Malanga, a senior fellow at the Manhattan Institute, drew this contrast in a recent op-ed in the Wall Street Journal:
“Some five million private-sector workers have lost their jobs in the last year alone, and their unemployment rate is above nine percent according to the BLS [Bureau of Labor Statistics]. By contrast, public-sector employment has grown in virtually every month of the recession, and the jobless rate for government workers is a mere 2.8 percent.”
Here in Minnesota, major private companies such as Best Buy and Thomson Reuters are laying off people, offering buyouts, and generally shrinking their workforce. Medtronic announced Tuesday it was parting ways with 1,500 to 1,800 companywide, about 600 in the Twin Cities. By contrast, the American Federation of State, County and Municipal Employees and the Minnesota Association of Professional Employees, two large unions for state workers, recently accepted a two-year contract. True, it calls for no increase in the pay scale. On the other hand, the unions have resisted any talk of furloughs.
The union leaders are doing their jobs – protecting the financial interests of their members. But when your income is down, you re-evaluate your spending priorities. It’s time for legislators, acting as the agents of the citizens, to apply the same discipline that we apply in our personal lives.
Since at least 1960-the earliest year for which I could find records-spending in Minnesota has gone up each biennium. This is true of both the general fund and of all funds as a group.
In the average biennium since 1960-61 in this state, all-funds spending went up 19 percent, and general-fund spending increased 20 percent. Over this same time, by contrast, personal income has gone up an average 13 percent per biennium. In other words, Minnesota residents are devoting a greater portion of their well-earned income to government.
All-funds spending went up 28 percent each biennium, until the Reagan area. Since the 1980-81 biennium, the average increase has been “only” 12 percent for both general and all-funds spending. Even more encouraging, personal income has actually grown faster than spending on government: Since 1980-81, personal income has grown 13 percent every two years, just slightly outpacing spending on government.
Still, the historic trend is clear. For every dollar Minnesotans earned in 1960, they earned $29 in 2007. But they have had an unsustainable appetite for government: For every one dollar Minnesota spent on state government in 1960, it spent $49 in 2007.
Minnesota has a long history of creating taxes, including an income tax in 1933 and a sales tax in 1967. It has continued to tighten the screws on taxpayers by extending measures such as ones requiring withholding (1961) and taxing out-of-state professional athletes (1989). Along the way, the states has enacted surtaxes (1949, 1981), increased them (1982) and extended them again (1983). It even put a surtax on the bonus our country gave to people who were drafted by the military (1957). And of course rate increases are nothing new, either: The first increase in the income tax came a mere four years after the tax itself was established.
Raising tax rates would certainly be consistent with Minnesota history. But it would deny citizens the opportunity to let the growth of government match (or better yet, lag) the growth of the private sector rather than exceed it.
Government should borrow a page from the private sector, in which hard times focus leaders’ minds on reevaluating business methods and jettisoning non-core functions and activities.
Should opponents of tax increases “compromise”? Only if they wish to waste the opportunity presented by the recession to bring the relationship of the political sector and the private economy back into balance.
Many of us have had to make do with less-and do less. It’s time for Minnesota and other governments to do the same.
(A slightly different version was printed in the May 21 Saint Paul Legal Ledger Capitol Report.)
Hennepin County Commissioner Jeff Johnson was elected last year and began his term in January. He’s already figured out that County Government has one of the most sweeping powers to levy taxes and yet has the least transparency and accountability of any level of government in how it spends taxpayer money because much of its activity goes unreported in the media. In a bid to rectify that in his own county, Johnson has decided to blog about his experiences and what he finds at Hennepin County Taxpayer Watchdog. Watch this space.
According to today’s edition of the UK’s Telegraph, White House Energy Advisor, Steven Chu suggested that worldwide, all roofs be painted white in an effort to curb global warming. The suggestion came at a three day Nobel laureate symposium in London. Chu went on to claim the white roofs could negate the carbon output from eleven years worth of cars on the road. The controversial claim attracted hundreds of comments from skeptics. Some highlights:
You can file this idea next to the folder labeled “Cloud Whitening” technology.
The Wall Street Journal has a story today on the experience of Maryland, which created a “millionaire” tax bracket to capture additional tax revenue from a top 6.35% marginal rate. (Link here, subscription may be required) A year later, 1/3 of Maryland’s millionaires have vanished from the rolls. While it’s entirely possible that many of these millionaires disappeared due to the stock market and real estate crashes, it will be interesting to see how many individuals changed their residency or moved out of state to more tax-friendly climes. The article notes that Maryland’s wealthy are more likely to own property in states with lower taxes, even nearby ones like Virginia, making escape not only possible but easy. Such will probably not be the case for working families when the tax increases fall on them to make up for the flight of the rich.
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Minnesota Free Market Institute | P.O. Box 120449 | St. Paul | MN | 55112
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Today’s Wall Street Journal opinion pages include a glowing account of Governor Pawlenty’s performance during this year’s legislative session. Besides being a great read, it serves as an invaluable “outside-in” view on the events of the last five months. Check it out here.
John Hinderaker over at Powerline, posted a great synopsis of this year’s legislative session.
From Powerline:
As I wrote earlier today, Minnesota’s legislative session ends at midnight tonight. Despite the Democrats’ large majorities in both the Minnesota House and the Minnesota Senate, the session is shaping up as a huge victory for Republicans and conservatives. This is due mostly to Governor Tim Pawlenty, the only man standing between Minnesota and economic irrelevance. Pawlenty vetoed a billion dollar tax increase sponsored by the Democrats. Moreover, when the Democrats foolishly sent final spending bills to Pawlenty’s desk for action, they forgot that, having vetoed the tax increase, and the state being constitutionally bound to balance its budget, they had put Pawlenty in a position to essentially write the state’s budget for the next two years, via line item vetoes and “unallotments.”
All of this worked because a rock-solid Republican House caucus, under the leadership of Minority Leader Marty Seifert, consistently marshaled enough votes to block the Dems’ efforts to override Pawlenty’s vetoes. In fact, when it came to the billion dollar tax increase, House Democrats were peeling off to join with the Republicans in upholding Pawlenty’s veto.
So, with the end of the session only hours away, a group of anti-excessive taxation, anti-wasteful spending conservatives assembled on the Capitol steps to celebrate the victory and encourage Republicans to hold firm. The gathering was much smaller than the tea party in the same location a few weeks ago, as the organizers started planning it just last Friday. But it was a good time on a stunningly beautiful spring evening.
I was one of the first speakers; the quality is pretty good, so you may need to pause it for a bit before you play it:
A few minutes later, I was followed by House Minority Leader Marty Seifert:
It was a fun event, and Governor Pawlenty’s rout of the Democrats might, indeed, turn out to be a sort of turning point, not just for Minnesota but for the nation. Let’s hope so!
Interest-Group liberalism — Root, Root, Root for the Home Team
May 28th, 2009 by Craig WestoverLowi coined the term “interest-group liberalism” to describe policy-making through deference to organized lobbies. Interest-group liberalism rests on two fundamental beliefs: Government is a positive force and a champion of good, and virtually all interest-group demands are legitimate. Consequently, a primary function of government becomes balancing and advancing any and all organized petitions.
The “end of liberalism” comes about when the appeasement process evolves the perfect storm of unrestrained bureaucratic growth, an unmanageable web of conflicting regulations and an unsustainable skyrocketing budget. Are we there yet, at the end?
Not by a long shot, and the reason is simple: Interest-group liberalism is the prevailing political philosophy of the American public, of Democrats and of Republicans — all the post-election Republican talk of a return to “conservative values” and “conservative principles” notwithstanding.
Slate writer Jacob Weisberg picked up on Lowi’s theme in a 2005 piece analyzing the governing philosophy of then President George Bush. When Democrats were in power, Weisberg noted, they were beholden to unions, lobbies for women’s rights, civil rights and gay rights, senior citizens lobbies, welfare advocates, Hollywood and trial lawyers. The hallmark of Democratic governing was a focus on policies that meant more to those groups than mattered to the welfare of the country at large.
When Republicans assumed power in 2000, the implied promise was the end of liberalism. Instead, Bush-era Republicans practiced their own brand of interest-group liberalism. Out with the old and in with military contractors, evangelical Christians, wealthy investors, gun owners and an alternative conservative media — new regime, new supplicants, but the same process.
Like the repentant weight-watcher who will do whatever it takes to slim down except diet and exercise, after getting hammered in the past two election cycles Republicans seem willing to do whatever it takes to restore conservative “values” — except adhere to conservative “principles.” Consider the touting by Republican Rep. Erik Paulsen of a legislative amendment he authored.
“Our military veterans who own businesses face unique challenges, and government must ensure the policies in place to assist them are achieving their goals,” Paulsen said in a press release. The “Job Creation through Entrepreneurship Act,” to which Paulsen’s amendment ensuring benefits for veterans was attached, also includes specific largess for women, Native Americans and a new grant program for Small Business Development Centers. It passed the House 406-15.
Paulsen and Republican Rep. John Kline voting for a bill that champions small business and veterans is certainly in keeping with “conservative values” (GOP Rep. Michele Bachmann did not vote). But using public funds to create private benefits for multiple interest groups by expanding the federal bureaucracy and deficit spending most certainly violates the conservative principles of limited government and fiscal responsibility (not to mention constitutional fidelity).
Such interest-group liberalism turns logrolling (legislators trading votes) from “a necessary evil into a virtue.” So at a state level, when southern Minnesota legislators earmark state funds for an international volleyball center in Rochester, there is nary a peep from their Arrowhead compatriots who expect reciprocal support in anticipation of a photo-op at a Duluth arena expansion. Both outstate areas support a budget-draining light-rail system between Minneapolis and St. Paul. A combined financial obligation on all Minnesotans, these projects respectively mean more to Rochester, Duluth and the Twin Cities than they matter to the welfare of the state at large.
The irony is that by practicing interest-group liberalism, both Democrats and Republicans are conservatively protecting an unsustainable status quo. Chances of actual reform — say, replacing the inefficient corporate income tax with a more efficient broad-based, low-rate sales tax — is problematic, not because of any flaw in economic logic, but because Democrats and Republicans both have supporters threatened by the reform. Their here-and-now concerns matter more, politically, than the future economic welfare of the state.
While many are outraged at government largess to interest groups other than their own, few are eager to gore their own oxen for the sake of principle. Nonetheless, unless we the people demand reform, it’s more likely the Twins will sweep a series in Yankee Stadium than we will ever achieve an “end of liberalism.”
This commentary originally appeared in the St. Paul Pioneer Press Thursday, May 28, 2009.
Posted in Blog Posts, Commentaries, Craig Westover, Limited Government, Tax Policy | 2 Comments »