Principles for State Fiscal Decisions - PDF File
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ABOUT USThe Minnesota Budget Project is an initiative of the Minnesota Council of Nonprofits.
Testimony: Senate Tax Committee, March 14, 2002The Minnesota Budget Project is an initiative of the Minnesota Council of Nonprofits. We provide research and analysis on budget and tax issues, with particular emphasis on their impact on low- and moderate-income people. In January, we released a set of principles to guide fiscal decision-making in response to the deficit. These are:
Based on these principles, we call on the Senate to include progressive tax increases as part of the solution to the state’s budget crisis. We have called on decision-makers throughout the session to make use of all three budget-balancing tools available. The Phase 1 plan passed by the Legislature made use of reserves and expenditure cuts. While the use of reserves in the current biennium lessens the blow from the expenditure cuts, the impact of those cuts will be serious, and in 2004-05, the cuts are much more severe. We believe that the spending reductions in Phase 1 represent the limit of how much the state can reasonably cut from its budget. Now is the time for serious consideration of what changes are needed to the revenue side of the equation. Another one of our principles is that budget-balancing decisions should not make the recession worse for those least able to shoulder the burden. This principle means that not only should we look at revenue increases to address the budget deficit, but that we need to look at the impact of revenue increases on tax fairness. Historically, we have seen that most states increase their regressive taxes during hard times and then cut their progressive taxes in times of surplus, which makes their tax systems more regressive over time. In Minnesota, we can follow a different path. When we cut our income taxes during the surplus years, we also included increases in the Working Family Credit so that low-income people were not left out. Similarly, as we look for tax increases, we should make sure we do not put a heavier burden on low-income taxpayers than on those who are better off. There is a range of options available in terms of raising revenues. An income tax surcharge is a fairly simple method that raises revenue in a progressive manner, but there are other possibilities.[1] Whatever method is chosen, however, we ask that close attention be made to the implications for tax fairness. A third principle we have endorsed is that budget-balancing decisions should be informed by past budget decisions. Looking at what we’ve done in the past further strengthens the idea that revenue increases must be part of the deficit solution. In the past five legislative sessions, 53% of the surpluses went to tax cuts and tax rebates, and 15% were devoted to the reserves and tobacco endowments. Only 27% went to towards improving or expanding state services. At the same time that we were cutting taxes, Minnesota benefited from strong growth in personal income. The percentage of income that Minnesotans pay for government, as measured by the Price of Government, is lower now than in most of the 1990s.[2] Our last principle is that the state should not allow federal stimulus efforts to make our budget-balancing task more difficult. Unfortunately, the stimulus plan just passed by Congress will cost Minnesota an estimated $427 million over three years.[3] I hope that in your omnibus tax bill that you would either not conform to these federal changes, or that offsetting revenues be found, such as by increasing the minimum fees paid by corporations, which have not been increased since 1990,[4] and by adding a throwback rule, which addresses the problem of multistate corporations having some revenues that are not taxed in any state.[5] There is no question that difficult choices are ahead. However, by looking at the full range of options available, and considering the impact on vulnerable Minnesotans, policy-makers can make budget-balancing decisions that put the state on the right track while not increasing the recession’s burden on those who are hurting most. Click on footnote number to return to text. [1] See Minnesota Budget Project, Options to Address the State’s Budget Deficit. [2] See Children’s Defense-Fund Minnesota and Minnesota Budget Project, Wasted Opportunities: How We Used Our Surpluses 1997-2001. [3] Center on Budget and Policy Priorities, Multi-Year Business Tax Cuts Still Dwarf Aid to Unemployed Workers in New House Bill, March 11, 2002. [4] Governor Ventura’s proposal to raise minimum fees would raise approximately $30 million per year. [5] A corporate throwback rule treats sales made in a state in which a corporation is not taxable as if they were made to customers in the state from which it was shipped. This provision would raise roughly $28 million in FY 2003 according to the Minnesota Department of Revenue, Tax Expenditure Budget 2000-2003. Updated March 18, 2002 |
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