It's the Spending Stupid

It’s the Spending Stupid

By Phil Krinkie

9/27/12

Whether at the federal, state or local level of government, our elected officials don’t seem to understand that they shouldn’t spend money faster than the rate of economic growth. It’s like that old axiom, “Don’t spend money you don’t have.” For politicians it’s always easier to say “yes” than to tell someone “no”. There are no better examples of this lack of fiscal restraint than our current President and our current Governor.

Our out of control federal spending has been a key Presidential election topic for months, so I will focus instead on our run away spending at the state level. In the most recent budget battle during the 2011 Session, there was an impasse between the Republican controlled legislature and Gov. Dayton. The result was an overall spending increase of more than 15%. Most of the spending growth was paid for with increased revenue, but some of the increase was paid for with an accounting shift (i.e. in delaying payments to school districts) and some was paid for by cashing in on future revenue. Yet the final budget compromise of 15% growth in spending was heralded as a victory over Dayton’s desire for 20% growth.

But Governor Dayton continues to unrelentingly believe that the solution to our state budget issues is to raise taxes.

In a recent speech at the University of Minnesota, Dayton spoke about his commitment to raise taxes on the state’s top 2% of income earners. He stated: “What people need to know and can vote on is that I’m committed to raising taxes on the wealthiest two percent of Minnesotans …” Dayton also said, “This unwillingness to pay taxes and seeing it as a threat to our freedom and liberty and our way of life, is going to be the death of this country if it’s not corrected.”

What the Governor fails to understand is that the state continues to have budget shortfall after budget shortfall because lawmakers insist on spending more than they are collecting. Over the last ten years, state revenue has increased by 45%. That’s an average of 4.5% in revenue growth per year. By contrast, the state’s economic growth over the same period of time has averaged only 4%.

To clarify where that 45% increase in revenue comes from, remember that thirty percent of households in Minnesota pay zero state income tax. In his quest to raise income taxes, Governor Dayton seems to forget that Minnesota already has one of the most progressive income tax structures in the country. The idea of making our state’s income tax system hyper-progressive, particularly through very high tax rates, will hurt Minnesota’s job climate and may even produce less revenue for the state if investors decide to opt for greener pastures in lower taxed states. Dayton’s proposal for a tax increase on the top two percent isn’t a solution to the state’s budget problems if state spending continues unchecked.

During the 2012 Legislative Session Governor Dayton exacerbated our state budget problem by pushing for more spending and more debt. First, he asked for almost one billion dollars in more state debt. The resulting compromise with the Legislature was a scaled down debt bill that still increased state debt by $550 million.

But the Governor’s demand for more spending didn’t stop with a $550 million bonding bill. The legislature also approved Dayton’s number one priority, a new billion dollar Vikings stadium for which the taxpayers will be picking up over $650 million of the cost.

However, Gov. Dayton’s lack of fiscal restraint didn’t end in May with the adjournment of the legislative session. His Commissioner of Management and Budget recently negotiated a contract with state workers that would result in a spending increase of $174 million in the next budget. Then just two weeks ago, Dayton approved $25 million in state funding for a new $54 million baseball stadium in St. Paul, despite the fact that St. Paul doesn’t know how they will provide its share of the funding.

Dayton’s unchecked spending habits were also confirmed by his desire to keep the Southwest Light Rail Line construction plan moving forward. His recent approval of $2 million in planning funds for this $1.5 billion project demonstrates his unchecked spending habit.

The report last week that Minnesota had a net loss of 2,000 jobs is a sign that our state’s economic recovery is starting to wane. It should be obvious to everyone by now, higher taxes and more government spending are not the road to economic prosperity. If the November election doesn’t yield a legislative majority that can rein in state spending, it is likely Gov. Dayton’s demand for a tax increase will be inevitable.