Almanac: At the Capitol

Are taxes completely good, completely bad, or somewhere in between? If you listen to the radio ads and billboards being published around the state attacking DFL state legislators, you might think the first two were being espoused. Reality, however, is a bit different.

I personally had a tax-related crisis of conscience recently. Because I have multiple sources of income using different tax statuses, I met with a tax professional to help me sort things out. He showed me all the little nickel-and-dime deductions an individual like me can take to reduce the amount of tax I pay.

Given where I stood with the IRS and the Minnesota Department of Revenue, I was tempted. Really tempted. After all, who likes paying money if they don't have to? But I'm a Democrat, I believe in paying my fair share for services the entire community needs...

That's right. I'm a Democrat. I believe in paying my fair share for services the entire community needs.

So I took some reasonable deductions: rent paid, for example. A few regular business expenses. But I left out a few things too, including a pretty sizeable charitable donation, and I walked away feeling pretty good about writing two checks.

And then I thought about the only logical conclusion we can possibly come to if we continue with the logic of the Taxpayers' League and Governor Pawlenty's political-campaign-funded radio ads: "DFLers are bad, because taxes are bad. All government services are bad. There is no such thing as 'your fair share.' Poor people are just lazy, and there's no reason for the middle and upper classes to pay for services we don't use."

As much as my colleague in this space, David Strom, and his anti-tax band of merry men want the populace to believe it, DFLers aren't espousing the polar opposite of that brutal and reactionary mindset. Rather, the DFL majorities, put in place by a wide mandate, are correcting four (perhaps eight) years of poor fiscal policy, and putting Minnesota back on the track on which we should have stayed: a course on which everyone can pay their fair share for services that enrich the entire community, and on which we can all agree that while no one enjoys paying taxes, we are all better off for the contributions we make.

I have to admit that I get impressed when a government agency can do something — anything — efficiently enough that an ordinary person would take notice of it. For instance, I marvel at just how good a job the Ventura and Pawlenty Administrations have done improving the experience of renewing car tabs; what used to be an onerous and unpleasant task is now often done with hardly a dent made into my day. Yippie!

Obviously the current batch of State Legislators are a bit more ambitious; so far this legislative session they have taken on reshaping the Earth's Climate, Energy Policy, changing the Urban landscape, getting Minnesotans out of their cars and into government-run transportation (using money taken from those using said cars), and of course are currently looking at policies to redistribute Minnesotan's incomes so that the economic landscape more precisely reflects the desires of the Limousine Liberals from Minneapolis.

That's quite an agenda!

I won't belabor the obvious: The tax increases required to accomplish all this will be remarkable in scope.

Rather, I would like to focus on a related question: From where did these otherwise sane people ever get the idea that any human institution, no less government, can or does have the kind of power and wisdom to accomplish all these fine tasks without there being enormous and generally negative unintended consequences?

Let's take just one — just one out of all these many tweaks that these Masters of the Universe have made to the natural state of things — and see what consequences they have wrought.

Consider doubling the mandated amount of Ethanol in our gasoline from 10% to 20%, as happened recently here in Minnesota. A number of new Ethanol production plants have sprung up. These, in turn, have been buying corn at a tremendous rate, popping up the price of corn. The price of corn shooting up means that animal feed products have shot up in price, as well as other corn-based products. The price of tortillas in Mexico, for instance, has about tripled. Tortillas are a primary source of protein for most Mexicans, and are becoming unaffordable to many (who will now consider emigrating North, of course). Further, high corn prices stimulate farmers to shift production of soy and other products to corn. Oh, but wait, all those ethanol plants are starting to suck up much of the water in the water table, making the lives of the farmers and ranchers much more difficult....

All this, and for what exactly? Little more than to pretend to do something, as Ethanol itself is a rather poor fuel and is not economically competitive with oil without subsidies and trade barriers.

In the long run our Ethanol policy will result in income transfers from poor Mexicans to wealthy Americans, excessive harm to our farmland as we encourage farmers to plant more corn than is healthy or necessary for the market, we will drive up the cost of natural gas (which is one of the main inputs in Ethanol production) that Minnesotans use to cook and heat their homes, and do real damage to our watersheds.

Liberals never seem to learn the lesson that the world is not so easily shaped to our desires. The unintended consequences of our actions can far outweigh the intended consequences.

AS bad an idea as that one rather modest tweak to our energy policy was, now multiply the possible consequences of some of the other proposed changes the liberals are pushing. Climate change policies. Renewable energy on a grand scale. Reshaping the urban landscape. Increasing transit ridership. Redistributing income.

Think there might be an unintended consequence or two?

Well, if Larry Pogemiller and the Masters of the Universe over in St. Paul get their way, we may have the opportunity to find out. Unfortunately, it may be that a good number of our entrepreneurs will be watching the carnage from a comfortable vantage point in another state.

Our analysis shows you're hitting our new and improved Almanac: At the Capitol in greater numbers and you're favorite feature is The Brain Trust. There's a classic battle being waged by the Taxpayers League's David Strom and former senator Ember Reichgott Junge. First David wrote in "Bring Back the Alcohol!":

"It's hard to believe that anyone could suggest that liberals like taxing and spending, given that these various increases add up to only $2.5 billion according to the Star Tribune.

What's $2.5 billion between friends? Combined with the $2 billion + in surplus dollars, that would total less than a $5 billion increase in spending over a biennium! Peanuts."

I'll get to the alcohol part in a minute. The meat first. Ember now responds in "DFL: Be Bold. David Strom, Get a Life":

"Please, get real. Let the process work. Let's have the debate that was stifled over past years. The fact that legislators are introducing these bills means one thing: Minnesotans are demanding balanced fiscal stewardship for our state. And that doesn't always mean cutting taxes. It means investing in the dynamic quality of life we've grown to appreciate. Minnesotans are saying: "Enough! Enough of the damage to our core values you helped deliver with your 'No New Tax' pledge.' "

Before you think I'm fanning the partisan flames, let me report that David and Ember are wonderful sports and actually cc'ed each other on their postings. Okay, now to why a conservative like David Strom is urging lawmakers to drink:

"Personally I am beginning to think that one of the worse things to happen over the last few years is the TV Reporter's exposure of drinking at the capitol. At least when the legislators were well lubricated we had a chance to escape their attention. Now that they are wholly lucid, who knows what they will come up with?"

Now Ember doesn't respond to the need for legislators to be "well lubricated" but she does have advice for the often talked about but little understood freshmen:

"To my first-term friends now at the capitol … voting to restore revenues for core services like health care and education isn't an act of courage … it is an act of responsibility. I remember how we in the DFL majority voted for necessary tax increases during the Perpich years to create budget stability and invest in Minnesota's future. I don't recall even one DFL incumbent senator who lost during the entire decade of the 1980's."

David Strom, Get a Life

In your last missive, you listed tax increase bills introduced by legislators (conveniently forgetting those introduced by Republicans), added them up to something like $2.5 billion, and claimed the DFL is out of control.

Please, get real. Let the process work. Let's have the debate that was stifled over past years. The fact that legislators are introducing these bills means one thing: Minnesotans are demanding balanced fiscal stewardship for our state. And that doesn't always mean cutting taxes. It means investing in the dynamic quality of life we've grown to appreciate. Minnesotans are saying: "Enough! Enough of the damage to our core values you helped deliver with your 'No New Tax' pledge."

That said, I have different concerns about what's ahead. I fear DFL'ers won't be bold enough. It is time to restore the tax cuts we gave away in 1999, 2000, 2001 and beyond. We shouldn't have voted for them. I, for one, will own up to my own misguided votes for "Jesse rebates" and other tax cuts.

To my first-term friends now at the capitol … voting to restore revenues for core services like health care and education isn't an act of courage … it is an act of responsibility. I remember how we in the DFL majority voted for necessary tax increases during the Perpich years to create budget stability and invest in Minnesota's future. I don't recall even one DFL incumbent senator who lost during the entire decade of the 1980's.

I have another fear. Any revenues we do raise will be so divided up in the end, they won't make a difference. Take early childhood. Everybody wants to do something. The governor proposed $330 million to restore devastating cuts during his first term to child care and early childhood initiatives. The senate wants to put about $400 million into a "scholarship" program to enhance learning and child care for 3-4 year olds. The House wants to put about $300 million into all-day kindergarten.

Personally, I favor investment in our youngest children through the scholarship program. But all are worthy. So I ask legislators to take two bold steps:

• vote for necessary revenues to really impact our youngest children
• vote to invest monies in one focused area where real results can be measured.

Please, don't nickel and dime our children by dividing meager resources multiple
ways to appease everybody. In the end, nobody wins.

First there was the 2 months of thumb twiddling.

Then came the week of spinning the forecast numbers. Is there a surplus, or not? Pogie says no, Seifert says yes. The Governor says "can't we all get along? — Let's just pass MY budget."

Now the real work of the session has begun, and if you are following the budget you know that keeping up is like drinking from a fire hose.

So, to help you out, let me first give you a sense of what the tax proposals look like, courtesy of a friend I have over at the House:

Income Taxes on Working Minnesotans

• Rep. Mindy Greiling (D-Roseville) wants to raise income taxes by $252 million. (House File 1738)
• Rep. Ann Lenczewski (D-Bloomington) wants to raise income taxes on 170,000 taxpayers. She added this tax increase with an amendment to House File 1258. It would collect millions more in income taxes.

Sales Taxes on Consumers

• Rep. Melissa Hortman (D-Brooklyn Park) wants to impose an extra sales tax to pay for transit and other purposes. In the Metro area, there would be one tax increase. In the rest of the state, the new tax could be proposed by any two or more county boards. (House File 1463)
• Rep. Rick Hansen (D-South St. Paul) would impose an extra sales tax to raise at least $500 million a year to pay for new parks, trails, and habitat projects. (House File 1449)
• Rep. Shelley Madore (D-Apple Valley) wants to impose an extra sales tax on the three million people in the metro area to pay for more buses and trolleys. (House File 1112).

Tax the Dead, the Drivers, the Homeowners, and the Paint on Their Homes

• Rep. Tom Anzelc (D-International Falls) wants to authorize a new tax on dead people in his area to pay for the Lakeview Cemetery Association. (House File 213).
  
• Rep. Bernie Lieder (D-Crookston) wants to triple a tax on hearses. (House File 946)
• Rep. Ken Tschumper (D-La Crescent) wants to raise fuel taxes by 50 percent on gasoline, E85, M85, liquefied petroleum gas, propane, liquefied natural gas, and compressed natural gas. (House File 1469).
• Rep. Bernie Lieder (D-Crookston) wants to raise your gas taxes by 50 percent, and allow counties to charge you a wheelage tax, and triple the tax on cars and hearses, and allow counties to raise the sales tax, and put a transportation-impact tax on every building permit, and raise the cost to register vehicles. (House File 946)
  
• Homeowners would face a 50 percent increase when filing any papers related to the purchase, transfer, mortgaging, sale, or other transfer of property. Money from those taxes on homeowners would be given to non-homeowners seeking to rent property or buy their own homes. Rep. Scott Kranz (D-Blaine) wrote House File 939.
  
• Rep. Melissa Hortman (D-Brooklyn Park) wants to collect more taxes on local deeds and mortgage documents in Anoka County. (House File 362)
  
• Rep. Erin Murphy (D-St. Paul) wants to collect more taxes on local deeds and mortgage documents in Hennepin and Ramsey Counties. (House File 1042)
  
• Rep. Joe Atkins (D-Inver Grove Heights) wants to collect more taxes on local deeds and mortgage documents in Dakota County. (House File 1466)

Taxing Alcohol and Cosmetic Surgery

• Rep. Phyllis Kahn (D-Minneapolis) wants to tax cosmetic surgery. This would be a bad precedent for the sales tax, which generally has applied only to goods (except for food, clothing, and a few other exceptions). (House File 1027)
  
• Rep. Michael Paymar (D-St. Paul) wants to pile enormous tax increases on beverages containing alcohol. He would raise taxes on metric sales beverages by the following percentages: distilled spirits (up 228%); wine (up 450%); hard cider (up 800%); regular beer (up 790%); and 3.2% beer (up 457%). (House File 1050) It would collect over $110 million in new taxes.
• Rep. Karen Clark (D-Minneapolis) is seeking similar increases in taxes on alcohol, but for other purposes. (House File 1446)

Taxes on Doting Friends and Relatives

• Rep. Joe Mullery (D-Minneapolis) wants to put a 10% tax on people who give gifts. If the donor does not pay the tax, then the tax liability shifts to the person who received the gift. In such cases, the donor would still be liable for a $100 penalty for not paying the gift tax. Under the bill, you could be required to show the gift to the Commissioner of Revenue to determine its true worth. (House File 1212)

"Reach Out and Touch Someone" with Taxes

• Rep. Debra Hilstrom (D-Brooklyn Center) wants to raise a tax on cell phones, land-line phones, and other telecommunications devices by 46%. (House File 1464)

"Giving" Begins at Home

• Rep. Frank Moe (D-Bemidji) wants to raise local sales and use taxes in Bemidji. (House File 1103)
• Rep. Bernie Lieder (D-Crookston) wants to raise local sales and use taxes in Crookston. (House File 1820)
  
• Rep. Will Morgan (D-Burnsville) wants to create special tax increment financing districts in Burnsville. These districts often shift property tax burdens onto current landowners for years. (House File 1054)
  
• Rep. Carolyn Laine (D-Columbia Heights) wants to create a special tax increment financing district in Columbia Heights. (House File 1879)
  
• Rep. Terry Morrow (D-St. Peter) wants a new local sales tax authorized for North Mankato. (House File 108)
  
• Rep. Bill Hilty (D-Finlayson) wants a new local sales tax authorized for Cloquet. (House File 885)
  
• Rep. Mike Jaros (D-Duluth) to raise taxes on food and beverages in Duluth to help to pay for a new hockey arena in that city. (House File 134)

Fee Increases Ahead

Democrats campaigned against fee increases last fall. But now, they are introducing bills with lots of fees. Some of the tax increases described above are called "fee increases" in part or in whole (phone fees, alcohol fees, health impact fees). Then there are these bills:

• Rep. Larry Haws (D-St. Cloud) wants to raise fees for county and regional jails. (House File 161)
  
• Rep. Brita Sailer (D-Park Rapids) wants to raise fees on video and electronic equipment sales. (House File 854)
  
• Rep. Joe Atkins (D-Inver Grove Heights) wants to impose an extra $250 fee on cigarette manufacturers. (House File 1737)
  
• Rep. Erin Murphy (D-St. Paul) wants to raise pharmacy fees automatically on an annual basis. (House File 1722)

It's hard to believe that anyone could suggest that liberals like taxing and spending, given that these various increases add up to only $2.5 billion according to the Star Tribune.

What's $2.5 billion between friends? Combined with the $2 billion + in surplus dollars, that would total less than a $5 billion increase in spending over a biennium! Peanuts.

The simple fact is that government is a very blunt instrument. Pretty much all it can do is create big bureaucracies, spend a lot of money, and regulate in very rough ways.

If anyone has any hope still about the ability of legislatures to craft complex, well-thought-out public policy measures, go down to the legislature over the next few weeks and watch how the process really works. You will see 201 people, all with different ideas and opinions, different agendas, and different personalities fighting like hell to get their agenda passed.

Out of that process a few omnibus bills are passed, that actually mean less than it seems, because when all is said and done, the real decisions are made between the leaders of the House, the Senate, and the Governor in late night negotiations filled with acrimony, brinksmanship, and high politics. Complex policy questions are pretty much last on the agenda in these meetings.

So, the one thing you can be sure of when all is said and done is that government will be bigger, cost a lot more, and still leave us with plenty of "crises" to solve next year.

Personally I am beginning to think that one of the worse things to happen over the last few years is the TV Reporter's exposure of drinking at the capitol. At least when the legislators were well lubricated we had a chance to escape their attention. Now that they are wholly lucid, who knows what they will come up with?

Please help me prove David Strom and Joel Kramer wrong!

I love David Strom and Joel Kramer like only a policy and political fiend could. I consider David a friend (that should invite me on his radio show more). But, dear Legislature, I hope you will help me prove them both wrong wrong wrong.

At a recent Twin West Chamber breakfast, both David and Joel agreed that the national political dynamics would not help get things done this year in Minnesota. I was the optimist. I said the dynamics would work in our favor. I hoped that the Governor's potential national ambitions, and the Democrat's need to demonstrate their new political muscle, would set the stage for policy progress.

After all, Minnesota has a political opportunity here that we haven't seen in over 10 years: a clear mandate from the public in terms of priority issues; a unified legislature; a surplus; good/workable ideas on the table, etc. Both the Governor and the legislative leadership "win" if they address a key set of issues this year.

But with very little time left in the first part of this session, I'm worried David and Joel might be right.

• Are base budgets really "off the table"? I hear they are. How on earth are we going to innovate if changes to current spending are off the table?


• I understand that health care is tough, but waiting until next year?! There is never going to be a single silver-bullet on health care. There are a number of good ideas on the table — one of them our idea on establishing a consumer voice in the medical care market.


• I agree with the Governor's call to reinvent high school and improve financial aid for higher education — but are any of the proposals on the table sufficient to accomplish the task?

What's happening at the Capitol?

Depends upon who you ask.

Legislators will tell you that they are running themselves ragged with a grueling schedule of committee meetings, fact finding tours, and plenty of due diligence.

Knowledgeable insiders will tell you that they are twiddling their thumbs until the February State budget forecast comes out. Because until it does, precious little can be done by legislators once they get done raising their pay and posturing about how much they care about global warming.

One thing I can assure you is that everybody at the Capitol is crossing their fingers and hoping that Fed Chairman Ben Bernanke is right and that the US economy is humming right along, because it is the rare legislator who doesn't have plans to spend a lot more money than will be available. The $2 billion budget surplus everybody is expecting is getting to sound like peanuts to the insiders, and politics watchers are speculating on just how big the proposed tax increases coming out of the Senate will turn out to be.

One thing you can be sure of, though: the property tax relief package that gets passed this year is going to make a mighty small dent in that big bill you always hate to pay. The promises made during the campaign to "do something about high property taxes" is going to be difficult to keep given how much spending is about to take place. So expect at minimum a great deal of "loophole" closing on "deadbeat" businesses; a proposal to increase business property taxes to offset homeowner taxes, and a brewing fight between Democrats in the Senate and House Speaker Kelliher about just how much they can increase taxes without costing the DFL the majority in the House.

The State Legislature is an "unmet needs" creation machine. There will always be more demands on resources than they ever can meet. We just don't know how willing the new Democratic leadership will be to say "no" to all the constituencies that are knocking on their doors asking for more taxpayer dollars.

Mark my words, though: I expect proposals to substantially increase taxes on business (employers) and higher income wage earners. Minnesota will again be entering the "golden age" of being in the top 5 taxing states in the nation.