A 2015 study by the nonpartisan and highly respected Center for Fiscal Excellence reached a conclusion that today is coming home to roost. Its evaluation of Minnesota taxes found that it would be difficult to get more money from the state’s wealthy through hiking the income tax. Instead, “any substantial new spending intended to reduce income inequality will almost certainly need to be supported by new revenue streams from other, more regressive forms of taxation.”
In other words, if Minnesota’s lower-income residents need better schools, health care and other support systems to raise their economic prospects, it is their tax burden that disproportionately will pay for the improvements.
That forecast has proved true in Gov. Tim Walz’s budget proposal. In order to pay for his ambitious spending plans, taxes on the bottom half of Minnesota’s earners will increase 9.9%; the top half of earners will see a 5.9% hike. The data are from Walz’s own Department of Revenue.
The finding has produced the predictable reactions from Republicans and Democrats. The former say Minnesotans are taxed too much, the latter argue that Minnesotans want to invest more in the priorities residents value.
The debate reflects the same line-in-the-sand arguments over taxes and spending that have defined Minnesota partisan policy debates for years. Arguing over whether the state taxes too much or spends too little ignore the most fundamental question: Is the state achieving the outcomes needed to prosper in a global economy that continues to grow more competitive?
Minnesota enjoys a high standard of living. According to the Census Bureau’s American Community Survey, Minnesota has the nation’s 12th-highest median household income, more than $9,000 higher than Wisconsin and 60% higher than last-place West Virginia.
But it hasn’t always been that way. In fact, it wasn’t until the 1970s that Minnesota became a wealthier-than-average state. Bipartisan political leadership, innovation from business and civic leaders and support from a robust nonprofit sector drove the kind of policies that created the economic and social vitality Minnesotans enjoy today.
Importantly, increasing the wealth of Minnesotans didn’t come only from investments that were framed only by how much government should tax or spend. Between his time as chief of staff to Gov. Harold LeVander and his election to the U.S. Senate, Dave Durenberger was a citizen advocate for parks, trails and other green spaces. His leadership was key in creating the regional park system in the Twin Cities metro area, for example.
Durenberger’s citizen-led public policy created a recreational bonanza for Twin Citians. But more than that, green space contributes directly to achieving the vital outcomes of a healthy, well-educated population. That has been well-documented by numerous studies. Today, parks and other recreational areas are funded by government but also by users, businesses and other investors.
Certainly, government should appropriately fund health programs and other important public programs. But more money alone won’t solve critical issues like the academic achievement gap if funds just go to the same programs.
Look at Edina, one of the state’s best-funded school districts. Edina students outperform their state counterparts by 25% or more on the Minnesota Comprehensive Assessment. Yet, African-Americans attending Edina schools underperformed the average for all Edina students by more than 30%.
A wise investment in closing Minnesota’s worst-in-the-nation achievement gap might be buying vacuum cleaners. A study conducted by the Minnesota Department of Health looked at ways to reduce emergency room visits by kids with asthma from low-income families. What evaluators found is that one of the most effective ways to reduce the visits was to help parents reduce the triggers that produced attacks — more efficient vacuums, washing and changing bed linens, ensuring that kids were on the right medication and the like.
The result? Just by making some fairly simple changes, children with asthma not only reduced hospital visits, but cut school absences due to asthma attacks from an average of seven days a year to less than one. Just this one investment would add about half of an academic year to a K-12 education for low-income asthmatic kids, many of whom are at greatest risk of falling victim to the achievement gap.
Buying vacuum cleaners won’t show up in any state education bill, but it is the kind of investment that pays huge dividends in improving academic achievement and ensuring the continued prosperity of all Minnesotans. As the Robert Wood Johnson Foundation points out, “The effects of chronic absenteeism can last a lifetime and negatively impact education, health, financial stability and employment.”
If legislators and Gov. Walz move beyond the narrow focus of taxes and spending to finding new solutions, better outcomes at lower costs might be available in a host of areas.
Both parties agree that major investments are needed in the state’s roads and bridges. Gov. Walz would add a 20-cent-per-gallon tax on gasoline. Republicans would finance repairs by using existing tax revenue and redirecting money from other areas of state government.
What if both parties started with a question different from how much and instead asked why? According to the Federal Highway Administration, Minnesota has the fifth-most miles of roads in the nation. What outcomes are achieved by a state that ranks 22nd in population and 12th in square miles but has more miles of roads than states that are bigger geographically (Colorado and Oregon come to mind) or have more residents (Florida)?
Given the changing population patterns of the state and the ongoing transition from an analog to a digital economy, it’s important to ask whether the money needed to maintain nearly 139,000 miles of roads (only 22,000 of which are in urban areas, a small amount compared to other states) gives Minnesota taxpayers enough bang for the buck. A future of autonomous vehicles and ride-sharing almost certainly will reduce the demand for roads while the economic importance of transporting ideas and information will place a premium on faster internet connections.
The state needs to ensure that businesses, including Minnesota’s critical agriculture and natural resources sectors, can efficiently and safely move their products to market. But expanding broadband and high-speed internet access will be a better long-term investment than maintaining sparsely traveled roads. And those realities are true for all Minnesotans, rural and urban.
Or what about the very structure of government? Minnesota invests a lot in the size of government and the number of governmental units. For example, Minnesota has about 40% more counties than the national average.
Government close to the people is a worthwhile attribute and an important outcome of public policies. But even as recently as a generation ago, achieving this goal required the practitioners of government to be physically close to those they served. With some creativity and commitment, technology today could give people a voice in supervising their public officials while maintaining a voice in policymaking without physical proximity.
Yet Minnesota continues to be one of a dwindling number of states that deliver many of its social services through its 87 counties. To cite just one example, only Minnesota and eight other states deliver child welfare services and programs through counties rather than consolidating them in a single agency.
Given the questions that have been raised in recent years about the effectiveness of some social services, it makes sense to at least evaluate whether a more centralized system could provide better client service and more accountability at lower cost to taxpayers.
Other examples of better outcomes for the same or lower costs abound. Investing in stable housing leads to better performance in schools. Programs that promote smoking cessation, more exercise and good nutrition reduce obesity, heart ailments and cancer, eliminating chronic illnesses in many people and dramatically lowering health costs.
The list goes on, but the point is this: For eight years under Gov. Tim Pawlenty, Minnesota tried to solve problems with tax cuts and holding down the rate of government spending increases. It didn’t work, so voters went to eight years of higher taxes and spending under Gov. Mark Dayton. The fact that the Legislature still is having the same debates about the same challenges is evidence that the more-is-better approach hasn’t worked, either.
It’s too late for these questions to define this year’s budget debate in St. Paul. But legislators and the governor can avoid making future challenges worse by not getting locked into a host of new tax and spending commitments. In addition, Gov. Walz and legislative leaders can use the summer and fall to explore new approaches to government, with a focus on first asking what kind of a state do we want to be and what outcomes in education, health, infrastructure and other areas are needed to achieve those goals? Decisions on taxing and spending will follow more easily and fairly if discussions start there.
If the focus in St. Paul, though, continues to be only about how much the state spends or the tax burden imposed on working families, it almost is certain that the same debates over taxes and spending will take place year after year. Meanwhile, the state will slip back into the mediocre also-ran status that thoughtful policy and civic leaders worked so hard to overcome a generation ago. It’s time for Minnesota to once again be bold.
Tom Horner is a public-relations consultant and was the Independence Party of Minnesota’s 2010 candidate for governor.