Lori Sturdevant: Life after 'no new taxes'

Tim Pawlenty's name may still be on the governor's office door at the Capitol. But it increasingly looks to me as if the state's frequently absent chief executive has moved on.

Minnesota should too.

Were the phrase "move on" not already appropriated by one sliver of the national political pie, it would be a fitting label for conversations I've heard lately near and under the Capitol dome. They've been about what happens after Gov. "No New Taxes" is gone in 2011 and Minnesotans are still struggling with an economy that won't bounce and a state budget that won't balance.

Take last week's assembly of tax policy wonks at the annual meeting of the Minnesota Taxpayers Association (MTA).

This group ought not be confused with the similarly named Taxpayers League. The association is an academic-and-accounting outfit, with a few business lobbyists thrown in for flavor. Unlike the league, which appears to hate all taxes indiscriminately, the association holds that some taxes are fairer, more effective and easier on the economy than others.

Tax reform advice from that quarter hasn't been embraced by the Pawlenty administration. Even when proposals have come from the governor's own task force, those that involve raising some taxes to cut others have been met with a cold gubernatorial shoulder.

But in post-Pawlenty Minnesota, the case for a switch from low-grade to high-test state taxes is going to become compelling. So predicted William Fox, director of the Center for Business and Economic Research at the University of Tennessee.

A state with a tax mix like Minnesota's is headed for trouble, Fox predicted. ("Headed?" thought I.) His reasons:

• The progressive income tax that Minnesota has had since 1933 is going to be harder to sustain, let alone increase, in a mobile, e-linked world. Upper-income people can too easily decamp to the tax haven of their choosing.

• A corporate income tax with the third-highest rate in the country is going to be a business-climate chiller, no matter how the formula is doctored to lower the tax's actual hit.

• A sales tax that spares purchases of food, clothing, drugs and most services is going to be a laggard, compared with overall economic growth. Minnesota will be a state with a lot of senior citizens, Fox noted, and they are more inclined to buy services than durable goods.

Fox predicted that in 2011 or soon thereafter, Minnesota will have to get serious about tax reform. It will want to catch more goods and services in its sales tax net, in exchange for lower business taxes and less reliance on the income tax.

That's the revenue side of the ledger. On the spending side, the forecast at MTA was for cost-saving redesign of the way public work gets done. The forecaster was Ted Kolderie, a gray beard among local policy thinkers whose credits include a stint as an editorial writer for this newspaper.

Kolderie sees danger in trying to balance the state budget by whacking spending or dramatically raising taxes. "We could easily lose what attracts people to come here and stay," he said. Besides, "the fight would tear this state apart."

His advice to those who seek to occupy Capitol offices in 2011: Look to redesign, not cuts, for long-term budget stability. Start now. Call on knowledgeable civic groups and stakeholders, requesting proposals for achieving desirable results at lower cost.

Find funding for the work. (Foundations are a good bet, he said.) Arrange the lawmaking calendar between now and May 2011 to include ample time to digest and debate the ideas that arise.

Then keep doing it. Productivity improvement in government shouldn't be episodic. It should be endemic.

Give the guv his due: Pawlenty has pushed productivity-enhancing redesign inside state agencies. But ideas for redesigning the big-ticket budget items -- education, health care, aid to local governments -- have hit speed bumps. It might be that gubernatorial intransigence on tax reform has worked to immobilize spending reform, too. If the big guy won't bend, nobody else will, either.

In a post-Pawlenty Minnesota, state lawmakers will need to be open to bigger changes on both sides of the budget ledger. Staying flexible will be key. As former U.S. Rep. Martin Sabo said at the Sept. 8 leadership summit: "There should be one pledge, and that is not to make pledges."

Lori Sturdevant is a Star Tribune editorial writer and columnist. She is at lsturdevant@startribune.com.