Speed Gibson

As I posted earlier, veteran Minneapolis Star Tribune reporter Dane Smith, now President of Growth & Justice appeared in studio on the NARN this past Saturday from 2-3 pm with Mitch Berg and Captain Ed Morrissey. It was a remarkably clear insight into the delusion that is Minnesota liberalism. Let me begin with Dane Smith's opening statement. The following is my personal transcription, edited for clarity.

Dane Smith: Growth and Justice really is a kind of center to progressive think tank that emphasizes the idea that certain investments, smart investments, and ample investments in the public sector are actually good for the economy. That's a real shorthand. We think that smart investments in education, in transportation, public health and other things actually work for the economy and we think that we have the numbers to show it. Or at least to show that Minnesota did quite well with higher taxes and bigger government in previous years. I think I'm sophisticated enough to know that there's not easy cause and effect on this stuff, but at the very least I think arguing that slashing taxes and making government as small as possible hasn't proven so far to be a formula for success.

Mitch Berg: We wouldn't know because we haven't really tried it. There's been no period in Minnesota history where you've either slashed taxes in any sense that any real slasher would regard as a slash and government hasn't really shrunk in Minnesota ever.

Dane Smith: Actually it has. Ten years ago, the Minnesota Taxpayers Association, the other conservative tax organization in this state, their statistics show, and these are commonly accepted and used statistics from the Census Bureau study of state and local governments, the effective tax rate was about 13 percent in the mid-90's. A combination of rebates and cuts over the last ten years have reduced that to 11.7 with the biggest cut coming in 1999 and 2000 from the income tax cuts. So we are right now in a big experiment with smaller government. The actual tax has dropped [1.3 percentage points] and that is significant.

First, the effective tax percentages quoted are actually from the biannual tax incidence study published by the Minnesota Revenue department as required by law since 1990. Smith's figures are correct, however, that the effective tax rate was 13.0 percent in 1994, 11.7 percent now. Let the record also show that it was 12.0 percent in 1990, and given the tax increases just passed, will soon be there again.

Yes, it fell during the Ventura adminstration, to 11.2 percent by 2000 in fact. But let's remember that the rebates and rate cuts were in response to huge, unanticipated (and temporary) increases in revenue from the dot-com and Y2K bubbles. Let us also remember that most of that windfall was spent, not rebated. Having raised spending significantly and permanently against a temporary revenue surge, was it any wonder we faced a "mega-honking" deficit in the wake of 9/11?

Ventura's two budgets raised general fund expenditures by 13.8 and 14.1 percent, about 30 percent over the four years, far more than inflation, personal income growth, or GDP growth. So no, the government did not do without. We could afford those rebates. Besides, didn't they in turn stimulate the economy?

The tax incidence study tallies what we pay, not what the state spends, which is larger because as the report notes, several billion dollars of spending are paid by outsiders, such as tourists. This is slightly misleading as we and our employers pay taxes in other states, not shown here.

Finally, this study only covers only the General Fund, which is perhaps 70 percent of total spending. Who pays for the rest? Even Federal money is ultimately our money, after Congress has pocketed about 30 percent of it in carrying charges.

Sorry Dane, but what we've really seen the past ten years is an experiment in BIG government. And the ten years before that, and the the years before that ...

Next time - whether you call it big or small government, does all that money truly pay for a better Minnesota?