Home > Politics and the Economy, Taxes > Where is the truth in the MN state shutdown?

Where is the truth in the MN state shutdown?

I may edit this a few times in the next few days as I learn things about the shutdown in the State of Minnesota. One thing I do know to start – neither side is telling us the complete truth. For the GOP and the democrats, it is all posturing for the next election (this goes at the national level too). Am I being to hopeful that leaders will emerge from the politicians that are running our government now?

If you spend less than you are expecting, it is not a cut.

I hate the word cut as it is used, mostly by democrats. I cannot stress this point enough. It is dishonest and misleading. It would be more accurate to say we are cutting back on projected spending. It could even be stated as we are cutting our inflationary adjustments for this budget cycle. But to call a real-dollar increase that is smaller than projected a “cut” is wrong.

A deficit is not a deficit if the money isn’t spent.

This is another word that makes me crazy. In Minnesota, our constitution requires a balanced budget every budget cycle. In all reality, we can’t have a deficit. I’ve said it before – if I expect a $10,000 raise next year and plan on buying a boat with the extra money and I don’t get the raise, I don’t have a deficit. I can cancel the boat purchase. I can get a second job. But I didn’t buy the boat, so it isn’t a deficit. A smaller projected revenue to projected spending is not a deficit.

The GOP in Minnesota proposed a 6% increase in spending.

Since it seems most news stories only repeat the party talking points, some of these are harder to decipher. From what I gather, the GOP is making the claim of a spending increase based on state money that was spent in the last budget cycle, while excluding money that was spent from one-time stimulus money from the federal government. So the GOP isn’t being truthful here. It would be more honest to state we are keeping real dollars spent level, and we are lucky to have the extra revenue to do so.

Spending shifts are not revenue.

Both parties are to blame here. This will be one spot where I will say the Governor came out like a star in his speech regarding the shutdown. For years, the federal government has been doing this. More recently the state has been using this “strategy” as well. Both parties in the past are to blame. At the federal level, the promised payments to schools for special education is 2 to 3 years behind. They also only pay somewhere around 30-40% of the total cost of special education. At the state level, schools are owed well over $1 billion thanks to the past democratic legislature and republican governor. “Borrowing” from schools is a stupid idea, and it isn’t revenue. If you can’t afford to pay the schools, then just tell them that. They’ve already gone without the money, so let’s stop “delaying” payments, give them what we can afford, and stop lying about it to the public.

Inserting social control into small government.

I am seeing conflicting reports over whether or not the GOP inserted their social agenda into the last budget offer they sent to Governor Dayton. I’ve said many times I am for smaller government. I’m sorry GOP, but you are a big loser here. You can’t push a religious-based, social control agenda and be for smaller government. So, whether or not issues of abortion, stem cells, etc. were in the last proposal, the GOP already showed its hand by trying to pass an amendment against gay marriage. Some GOP candidates for President have already stated they don’t believe in evolution and want intelligent design taught in schools. Why don’t we ask other countries who are far ahead of us in science and math what they teach in their biology classes (hint: Charles Darwin wrote about it).

Defending spending and tax increases

Please read this section carefully. I do think when all things are weighed out we do need to ask the wealthy for more money. As circumstances change, we are going to need to adjust tax rates. It has happened in the past and will continue to happen. Even the Laffer Curve theory admits that the “sweet spot” maximizing revenue changes over time. However, I have a very hard time supporting taking money from anyone when I can’t get an honest explanation or be offered any kind of accountability. I don’t care if Reagan raised taxes 11 times. I don’t care if you “need” it. I need a new truck too, can I get a subsidy for it? <– This question is just for effect. What I mean by it is show me how the new money is going to be spent and how we are going to reduce waste and abuse before I give my support.

This is where the Democrats get it wrong. They hold up a picture of the kids or the elderly and say “this is who we are hurting.” It is a terrible strategy because people don’t believe it. I bet almost everyone reading this can give anecdotes of waste and abuse in Health and Human Services, Education, Housing…all of the big budget items have some level of waste and abuse. Governor Dayton in his shutdown speech said it can be fixed, but we have to give more money first. But we don’t. The waste and abuse continue as they always have. And people have grown tired of waiting to reduce the problem. You can’t use the talking point of “we are only going to tax 2% of the citizens of Minnesota.” They are people too, even if they are rich. Show me you are going to use the money wisely, and I will support it.

The Independence Party tweeted the night of the shutdown that no one has mentioned why HHS needs more money. Our population is getting older. This is true. It is going to get more expensive to care for the baby boom people. We are going to have to be smart in how we handle these people, our friends, neighbors, and family. But is it fair to ask a few people (the people with high incomes) to pay for all of our parents, friends, and neighbors? We are all going to have to do a little more to help out each other. We don’t need to take the money from the rich by force. There are better ways to get the wealthy to help. We also might have to take a little more out of our own pocketbooks.

A couple of thoughts on how we might ask the wealthy for help. We are so willing to give out state funds to the rich to build stadiums for their sports teams, maybe we could do something similar with buildings that would be useful to more people. Help us build a new school and you can have the property across the street and charge for parking at high school sporting events. Help us build a nursing home and you can put your pharmacy right next door. These might not be perfect ideas, but I’m just throwing them out to get us thinking differently so we can all feel like we walk away with something.

Why do I insist on protecting the rich?

I am adding this section due to some current and previous responses to my blogs about taxes and government spending. Let me just say I am not advocating my position to protect the rich, nor am I saying that we absolutely should not raise taxes on the rich. But there are a few reasons we need to think very carefully before we let this happen.

First, before we raise any taxes on anybody, we need to be asking what we are getting for the money. In any political discussion, have you ever heard an agreement on the government has enough money. Imagine if the parties came out united and said “Great news! We have more money than last year, so we don’t need any more from anyone. Thanks!” When we continue to ask the small percentage at the top for more money, it is a bit like the spoiled rich kid asking for more money for books at college, when all he is really doing with it is buying pot. At some point, the rich start asking why their friends kids Texas and South Dakota never ask for any money (TX and SD have no income tax).

Second, we have to recognize they are people too. People at all levels want to keep what they have and what they feel they earned. The very rich already avoid taxes by changing their behavior. They take income from investments, so they can pay the much lower capital gains rate. They buy municipal bonds that have tax-free interest payments. It doesn’t make what they do “right.” It is reality. We have to be judicious in asking for more money, or the rich will change their behavior. In the end, the person we hurt the most is the person who finally opened that 5th restaurant and made their first million or the family farm who have a good year but take a great risk every year in what they do.

Third is my assertion that government needs to stay small and we should generally not give them more. Once we give them more money or power, it is very hard to get it back. In MN for example, Governor Dayton may have all good intentions to spend the extra money on important things like education, the sick, the poor, etc. But what happens when the next election comes around and someone else is running the show. We have no guarantee that the next person will be as pure in intention or have the same goals as the current person. It is hard to make a complete judgment of that character simply based on a campaign. What if the next person decides to take this new money away from education and use it to develop a long-term nuclear waste storage facility in the state? What if this person uses the money to build a pipeline from Lake Superior to the desert southwest? Once government has the money, we have no way to control how they spend it. I don’t know if anyone remembers the Patriot Act, but we gave that control away to the government and despite his campaign promise, President Obama has yet to give that power back to us.

Finally, I am not saying in this instance a tax increase isn’t justified. What I am saying is we need to have the discussion of how much is enough. The rich do have a big influence on our economy through investments as well as the taxes they already pay. I have advocated in my previous posts that one of the most important things in tax policy is stability. We can’t keep threatening to change the tax code or raise tax rates every time the wind blows. So let’s take a look and have the discussion of how much does government need. Let’s be honest as to what it is going to be used for. And once we’ve decided what level of taxes is appropriate for our needs, let’s set it there with some assurance it won’t change for the next 10-15 years unless there is some disaster far beyond what we could ever anticipate. That’s tax stability, which is nearly as important as the rate. Tax fairness and keeping taxes reasonable is also important, but stability can help offset the other two aspects.

I apologize for a bit of a straw man argument here, but here’s something to consider about tax rates. If we raise the tax rate by 1% every year, where will the tax rate end up (Answer is 100%)? If we raise the rate every time we need money, we soon run out of rate to raise. Tax rates on income are set a percentage. So if the economy grows and incomes go up, the government already gets more revenue. In fact, the state of MN has had an increase in revenue, but because we shifted payments in the past and we spent one-time money from the federal government, the tax revenue projected is about even with spending because we got money from elsewhere in the last budget cycle.

Some sobering numbers

Mark Dayton’s latest proposal wanted to raise taxes on those making over $1 million per year. He said in his shutdown speech that amounted to about 7,800 people in the state we would be taxing. To make up the extra revenue the Governor is requesting of roughly $1.5 billion, each of those people would have to pay an average of over $192,000 each. Do you think $192k will change someone’s behavior?

At the national level, our debt is approaching $14.3 trillion. According to the IRS, the top 1% of income earners pay 40% of all taxes, the next 4% pay the next 20%, the next 45% pay the remainder while the bottom 50% pay no net tax. If I assume every person is a taxpayer (making the following numbers as low as possible), here is the break down of debt per each segment: The top 1% each owe about $1.9 million, the next group owes over $283,000 each, while the rest of us that pay taxes owe over $42,000 each. I think that’s also enough to change behavior.

My twitter discussions

I’ve challenged quite a few politically active tweeters to some questions they don’t like. To them I’d like to apologize if I offended you. My purpose is I really want to challenge your thinking, and I want you to challenge mine. I want to learn more, and I would hope that rather than be insulting you would grant me the same education.

The thing that irritates me more than anything is blind party loyalty. If you think your party is the solution to all of our problems in government or society, you are simply wrong. I have no problem with someone backing a party that mostly aligns with their principles, but when you call out the other party’s hypocrisy while ignoring your own, you lose credibility. We have to call out the “leaders” on both sides on their hypocrisy and by doing so be leaders ourselves. We will all be better for it.

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