The budget impasse has brought us back to the old argument that “the rich” are not paying enough money. Not their “fair share.”
Of course it’s easy to argue this. We all want stuff. In fact, nearly everyone wants stuff from government. What we want may be an obvious income transfer such as a welfare check or a food-stamp debit card. It may be financial aid for our college-bound kids, bike trails for our recreational wants, a building for our favorite sports team, or roads that take us to where we want to go.
But who pays for these things? Who should pay for them? It’s easy to say “the rich.” “The rich guy” is always someone else. Pretty convenient, there: Eat your lunch, and have someone else pay for it. And don’t we live in a democracy, where we decide things by majority vote? Imagine we have 10 million voters here in Minnesota. What if 5 million+1 of us decide to tax the 4,999,999 remaining voters at a 20 percent rate? Wow. We could have a lot of stuff.
Except. Except at some point raising tax rates on “the rich” amounts to a polite form of a mob action. Except that at some point “the rich” will take their money out of the revenue stream, either by taking advantage of legal loopholes or by taking themselves–and their money–out of the state altogether. It’s happened elsewhere. It’s happening here. It will happen here more, and employers will expand their businesses elsewhere, as 3M and others have done for years.
We live in a high-tax state that has a spending problem. The governor thinks we have a revenue problem–that, or he thinks that high tax rates are somehow virtuous in themselves. But soaking “the rich” becomes at some point equivalent to a son robbing his mom’s purse to “help” his alcoholic sister buy that next body of whiskey–taking money from one person and giving it to someone else for unhealthy spending purposes.
It’s been said that politicians do the right thing, only when there is no alternative left. They make small steps to dismantling bureaucracies, pealing back tax rates, and freeing up the private sector to do its work. But if the money keeps coming in, where’s the impetus to reform? Note, however, that lack of money doesn’t always bring reform. California, for example, continues to spend itself into the abyss. Illinois, doing the same, recently raised its income tax rates. But other states are making changes. Wisconsin, Ohio, and Michigan come to mind. Even New York, a one-party (Democrat) state, may at least have stopped digging the hole any deeper, even if it hasn’t started to make significant changes.
What about Minnesota? Are we doing things so well in government that we can’t cut some increases planned by the last legislature? Is the balance of public versus private sector so finely tuned that a “mere” 6 percent increase in public spending–the number offered by this year’s version of the legislature–going to turn Minnesota into a Hobbesian state of nature, all against all living lives that are nasty, brutish, and short?
That seems to be the position of the governor.
There are some serious challenges the state faces in the coming years. The Pioneer-Press editorial board understands this point. In a recent editorial, it said: “taxing the rich is a Band-aid, not a solution. We already have one of the higher state income taxes in the nation, so clearly high income taxes don’t produce balanced budgets.” The editorial points to the graying of the population, which will mean further demands on the public purse. That’s a topic for another day, but the board is right: taxing the rich more than they are already taxed isn’t a solution. It’s a slogan.
Two years ago I wrote a column for the St. Paul Legal Ledger on this topic. I wrote, “In Minnesota, the top decile earned 43 percent of all AGI but paid 66 percent of all the federal income taxes that Minnesota sends to the national government.” A similar situation obtained for Minnesota, as I worte, “According to the 2009 Minnesota Tax Incidence Study, produced by the Minnesota Department of Revenue, the top decile earned 42 percent of all household income, but paid 57 percent of all income taxes.” So the highest-income earners are already paying more than their share.
The governor has called for the Legislature to compromise. It already has, several times. Most notably, it opted to increase spending to match the increase in revenue. In fact, you could argue, and some people do, that the Legislature has already spent too much. The governor ought to be happy that the Legislature didn’t opt for a lower number. That would have produced a lot of work for legislators and executive branch officials, to fix the public equivalent of “too much month at the end of the money,” but it would have been a prod to some badly needed rethinking of public priorities.