Larry Pogemiller: Take off the rose-colored glasses

08/05/2006

Those who think tax cuts improve Minnesota’s economy have forgotten an ancient truth.
Larry Pogemiller

Published: August 05, 2006

Through selective use of information, Michael Wigley and William Cooper portray a world in which tax cuts magically result in increased government revenue and a million flowers bloom ("Tax cuts are benefiting our economy,” July 23). Unfortunately, the real world is less rosy and more complicated than they would have us believe.

They are correct in noting that capital gains tax collections are up, but mistakenly, in my judgment, attribute the growth to tax cuts. Federal capital gains tax revenue increased more rapidly during the Clinton years—when taxes were increased—than in either the Reagan years or the present Bush years, when taxes were cut.

To simplistically link the growth in capital gains revenue to tax cuts seems to ignore the historical record. One needs to take into account a complex array of forces influencing capital gains tax collections.

Wigley and Cooper also claim that state government is flush with money. After adjusting for inflation the implicit price deflator for state and local government purchases, which is a better measurement for state and local governments, per capita state general fund expenditures are projected to decline by 7.1 percent from 2003 to the end of the current fiscal year.

What has been the impact of this decline in state spending? Real (i.e., inflation-adjusted) per pupil state aid for Minnesota schools has declined by 8.6 percent, which in turn resulted in increases in school property taxes and decline in real per pupil school revenues. State aid cuts to counties and cities have had a similar effect—higher property taxes combined with less local government revenue.

State budget cuts have resulted in some Minnesotans being deprived of lifesaving medicines. Funding for child care has been cut, making it harder for the working poor to find or keep jobs. The quality of care given to developmentally disabled Minnesotans has also deteriorated.

Wigley and Cooper seem astonished that the Growth & Justice coalition called for high-income households to pay the same percentage of their income in taxes as low- and moderate-income households. On average, a Minnesota family with a household income of $50,000 or even $150,000 pays 12 percent of its income in state and local taxes. Is it unreasonable to expect the same tax effort from families with household incomes of $500,000 to $1 million, who now pay from 9 to 10 percent?

Minnesota has fallen to 36th among the 50 states in total state and local government revenue as a percentage of personal income. Minnesota’s rate of investment in education is also falling.

Certainly, the rate of investment in education is not the only factor in maintaining and improving our communities and educational systems, but my experience in life is that you often get what you pay for.

Lawrence Pogemiller, DFL-Minneapolis, is the chair of the Senate Tax Committee.