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Minnesota 2020 Journal: “Truth Will Out”

May 24, 2013 By John R. Van Hecke, Executive Director & Fellow

The 2013 Minnesota legislative session pleased and disappointed me. I’m not alone. Many progressives feel shortchanged by some of the session’s public policy outcomes. Yet, it’s important to keep the big picture in mind, celebrating, perhaps with a tight smile, the sea change. We’re better off with the changes than we are without them. The alternative—continuing conservative policy direction—is a downward, state-defeating spiral.

Minnesota, like the nation, has been on a conservative policy trajectory for the past 20-30 years. “No new taxes,” as activist rallying cry and as tax policy, facilitated a structural shift in state tax policy. We moved away from the Minnesota Miracle’s progressive tax framework, dramatically increasing service cost burdens on communities.

Before proceeding, let me quickly explain the Minnesota Miracle. At one, simple level, it was an expansion of state taxation but stopping there not only misses the point, it misleads Minnesotans. Following post-World War II economic expansion and population growth, Minnesota reached the limits of infrastructure investment under property tax-reliant revenue generation models. Financing long-term projects like roads, bridges, schools, buildings, airports, and the growing demand for education, healthcare, public safety, public health and life-engaging services required more money, collected more efficiently, than twice-a-year paid property taxes. Plus, property taxes are inherently regressive and less efficient than income taxes.

The Minnesota Miracle increased Minnesota’s reliance on progressive income tax but also increased consumption taxation’s range. In return, Minnesota created a sales tax distribution mechanism that shared state sales tax with communities. With this new revenue stream, Minnesota decreased its reliance on inefficient, regressive property taxes. The Minnesota Miracle, in short, helped expand infrastructure investments while simultaneously buying down property taxes. Today, this revenue sharing program is called Local Government Aid.

So to recap, the Minnesota Miracle is a restructuring of revenue generation to facilitate community service expectations and economic development strategies. And, it worked. Minnesota continued growing and prospering. Our state evolved from an extractive industry, manufacturing and mercantile economy to its current, diverse, stable condition. As a result, we’ve become a higher tax, higher cost, and higher income state. We pay more than, for example, South Dakota but we get much, much more in return.

Not everybody likes this. Principally, conservative activists don’t like it. First, it violates conservative insistence on small government. Second, progressive taxation slows wealth’s concentration into fewer hands. I think that first objection is mostly a rationalization of the second but in order to convince a great swath of Minnesotans to act against their economic interests, a philosophical assertion is necessary.

Idealized conservative small government might provide for greater happiness if reduced community services’ burdens were shared equally. That’s not the case in practice, just in theory. The “too much government” chant resonates only until crime rises, educational achievement falls or a tornado sweeps through. Under conservative “no new taxes” policy, the outcome isn’t fewer, lower taxes, merely a reordering of revenue generation. The Minnesota Miracle’s efficient, effective structure was traded for a less efficient, regressive taxation mechanism that concentrated government’s benefits into fewer hands.

Conservative activists developed a communications strategy that tried to convince people that the pain they were feeling wasn’t pain at all. And, it worked for a while. From 2003-2012, Minnesota largely pursued conservative policy initiatives. Eventually, however, truth will out. Conservative communications strategy stuck with “no new taxes” even as policy outcomes revealed the policy shift as “take from the poor and give to the rich.”

Minnesotans, measuring results against rhetoric last November, chose a different path. Minnesota’s 2013 legislative session must be interpreted through this lens. Yes, I’d have preferred broader ranging legislative achievements but reversing a decade of poor policy can’t be realized overnight.

Minnesota is returning to wider prosperity. We’re expanding investments in people, not taking them away. The K-12 budget allocation is larger. So, too, is the higher education budget. Minnesota’s healthcare insurance exchange is on-track, not derailed by conservative activists. The legislative session didn’t tilt from one conservative social agenda-driven crisis to another. Instead, policymakers worked with less drama than it did a year ago.

In the process of reaching a balanced budget agreement, legislators didn’t force another pointless, costly state government shutdown. That’s a noteworthy achievement. It tempers my frustration with what didn’t happen.

This legislative session reminds us what happens when state policymakers focus on what really matters, jobs, schools, healthcare and growth. Minnesota moves forward. That’s a better, stronger outcome than the conservative alternative. Ten years of data taught us that conservative policy wasn’t working. Today, Minnesota is on the right path.

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