The budget forecast released on Nov. 30 rightfully pins responsibility for the shortfall on the poor performance of Minnesota’s economy. According to the Minnesota Department of Finance, which issues the forecast, Minnesota has lost 27,000 jobs since last June, and our state’s unemployment rate exceeds the nation’s for the first time since 1976. In just a few years, Minnesota’s economy went from overachiever to underachiever.
What can we do to put Minnesota’s economy back on its feet? First, we need to look at what got us here. Since the 1990s, Minnesota government has shifted from one that sets the table for general prosperity to one that rewards wealthy individuals through shifting the costs of government more and more on the middle class. The theory was that wealthy people, finding even more money in their pockets, would reinvest in Minnesota jobs and the economy.
It didn’t work out that way.
Unfortunately, this idea that making the wealthy wealthier will somehow trickle down to the lowly masses has yielded no results. We now have a state and a nation in which the rich keep getting richer and the poor get poorer.
Prior to that, Minnesota was a state that made smart investments in education, health care, transportation, and keeping homestead property taxes low. By promoting a well-educated and healthy workforce, private investment and employment thrived. A strong and comparatively prosperous middle class—making, selling and purchasing goods and services—was a chief reason Minnesota’s economy consistently outperformed the national economy. It also produced healthy surpluses in the state’s budget.
But Minnesota didn’t reinvest or simply save the surpluses. Subscribers to the “economic winners take all” theory, like then-Majority Leader Tim Pawlenty, clamored for tax cuts and rebates which went disproportionately to the highest-income brackets.
As a result, when Majority Leader Pawlenty became governor in 2003, he was forced to deal with a $4.2 billion budget deficit that was largely of his own creation.
I would posit that a large percentage of blame lies with our experiment in trilateral government led by one Jesse Ventura. Ventura turned us away from investment so that we could each get a rebate check. Unfortunately, the long term consequences of that decision were compounded by the likes of Pawlenty rather than solved.
In dealing with the shortfall, Pawlenty closed the budget gap with severe cuts to local schools and communities, and throwing tens of thousands of people off health care insurance. The “fix” also included billions in new user fees, tuition hikes and hidden taxes.
Some of the new fees and taxes are hidden so well that many people aren’t even aware that they’re there—until they have to pay them. Health care sales taxes soared 25 percent. A “granny tax” on private-pay nursing home residents will extract an extra $2,815 per resident this year. (The money, by the way, doesn’t go to pay for nursing home care; it goes to the state for other purposes.)
Cuts to education and local communities increased property taxes for most people as towns and cities struggled to keep up with local needs and schools turned to property taxpayers for support. Inaction on transportation funding caused local governments to also turn to property taxes to build roads and bridges.
Today, middle-class families in Minnesota pay a greater portion of their income in state and local taxes than wealthy people.
The argument that Pawlenty makes is that the richest people in the state are “job creators” and deserve special treatment. It’s a misleading premise. Rather, small businesses and a strong middle class are the real engines that drive and sustain job creation and retention. It’s the aspiration to acquire wealth to pay for college, vacations or retirement by building a business or working hard at a job that spins the economic engine.
Tim Pawlenty “fixed” a state that wasn’t broke. Now it appears that the state, literally, is broke—for at least the next four years unless he and the Legislature act.
Legislators are willing to come in now to balance the budget by closing foreign tax shelters and passing a construction bill that will put thousands of Minnesotans to work. The governor appears to be in denial about how bad the situation is. He refused the offer, content to let things slide for another two months until the regular session of the Legislature convenes. Our state is like a car stalled on a cold winter morning. We have the jumper cables out, but the governor is choosing to just drive by and wave.
But, in addition to the immediate budget crisis, we need a better long-term vision that will again set the stage for sustained economic growth in Minnesota. We should reject the radical economic theories of both the right and left. We ought to return to the days when Democrats and Republicans worked together to find common-sense solutions. The correct path will follow the principles of economic fairness and will make Minnesota work for everyone.
Once again, pragmatism wins the day!
