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“No New Tax” Redux

August 28, 2013 By Jeff Van Wychen, Fellow and Director of Tax Policy & Analysis

Remember the rigid “no-new-tax” policies of the Pawlenty administration, which brought us regular budget deficits and significant cuts to critical public services? Those are the days gubernatorial candidate Scott Honour is intent on returning to Minnesotans based on his recent Pioneer Press commentary.

Honour is critical of spending increases in the 2013 budget approved by the Legislature last May, although his commentary is generally silent about what new initiatives he does not like. Perhaps it is the funding for early childhood education and all-day kindergarten—measures long supported by non-partisan experts. Or perhaps it was the new homestead credit refund, which effectively targets property tax relief to moderate- and low-income families. Or perhaps it was the tuition freeze at the U of M and MnSCU. Or perhaps it was the new MNsure system, which will help thousands of Minnesotans find affordable health care. Other than a generic claim to “eliminate administrative overhead in every government department… by 10 percent,” Honour’s commentary is silent about what parts of the 2013 budget he would do away with.

Some claims in Honour’s commentary merit closer scrutiny. He contends that state government is “spending 2 1/2 times as much per citizen as we did 30 years ago.” It is not clear which spending he is referring to, but let’s assume that he’s talking about state general fund spending, which actually increased nearly threefold on a per capita basis from FY 1984-85 to projected FY 2014-15. However, properly adjusted for inflation, the growth in per capita spending over the last 30 years is a more modest 16 percent or an average rate of just under one-half percent per year.

The 16 percent growth in real per capita general fund spending from FY 1984-85 to FY 2014-15 needs to be considered in the context of demographic and other changes. For example, the demand for state health care expenditures has increased as the state population has aged. In addition, the number of non-English speaking and special need students in our public schools have increased, thereby increasing K-12 education costs—a large portion of which are borne by the state. Furthermore, beginning in FY 2003 general education costs were shifted from local property taxes into the state general fund; this bi-partisan initiative expanded general fund spending, but did not expand the size of government in Minnesota because the increase in general fund spending was offset by lower local property taxes.*

Claims about growth in state government spending need to be considered in the light of these and other cost-drivers. Like many other conservatives, Honour spouts statistics about growth in state government spending without providing the proper context.

Honour observes that the size of government needs to “fit the size of our economy.” The best long-term measure we have regarding the size of Minnesota’s public sector relative to the size of the state’s economy is the periodic “Price of Government” (POG) report, which measures total state and local government revenue less federal grants as a percentage of statewide personal income. Even after the tax increases approved during the 2013 legislative session, state and local revenues per dollar of personal income will be approximately five to ten percent less than they were in 1990 (the first year that POG data is available). Despite Honour’s assertions, Minnesota’s “Price of Government” will almost certainly be less than it was a quarter century ago, even after the recent state tax increases.†

As noted in Monday's article, Honour's policy priorities for Minnesota look at lot like the anti-tax agenda the state endured under Governor Pawlenty (2003 to 2010) and under the conservative dominated legislature (2011 and 2012).  If you're pleased with Minnesota's track record during this period—marked by state disinvestment in education, infrastructure, and other public services and a job and income growth rate that lagged behind the national average—then Scott Honour is your man. 

 

*It should be noted that cuts in real per pupil state aid since FY 2003 have lead to the return of general education property taxes in most school districts.

†More precise information will be available when the 2013 end-of-session “Price of Government” report is released.

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