Archived Story

How to make a budget surplus disappear

Published 9:53am Thursday, March 21, 2013

Column: Guest Column, by Phil Krinkie

As Minnesota’s economy continues to improve, so does the state’s budget picture. Recent employment data shows the state’s unemployment rate has declined to 5.5 percent, far below the national average. In the last year alone some 55,000 new jobs were added and more that 60,000 new businesses were registered. These are positive signs for our state’s economic outlook.

Just two weeks ago the latest state budget forecast revealed a dramatic improvement over the last three months. The February forecast indicated a 40 percent decrease in the deficit for the next biennium. The result is a projected shortfall of $627 million for the 2014-2015 state’s budget. This is a shortfall of less than 2 percent of the state’s estimated general fund spending of $37 billion for the next two years. Why would anyone want to derail our state’s economic recovery when everything appears to be on the right track?

Phil Krinkie
Phil Krinkie

A close examination of the numbers shows that the state’s growing economy has produced almost $3 billion more in revenue that predicted just two years ago. Despite this huge boost in revenue, Gov. Mark Dayton has claimed that state’s resources are not sufficient and therefore the state needs more tax revenue. To that end Dayton has proposed raising taxes by more than $3 billion, a whopping tax increase that when combined with federal tax hikes will undoubtedly slow Minnesota’s economic growth.

These budget facts yield two important questions: One, what happened to the nearly $3 billion of excess revenues that have been brought into the state coffers? Two, why would Gov. Dayton propose raising taxes by more than $3 billion when there is more than enough money to fund current state budget needs?

The first question is answered by a little-known state budgeting maneuver. Lawmakers sometimes include in budget bills the future dedication of excess revenues above the existing spending levels. Therefore, when state revenues exceed what is called for in current spending it is automatically designated to specific accounts. The result has been that $897 million of revenue above current spending levels has been deposited in the state’s “cash flow” and “budget reserve” accounts over the last two years. In addition, $1.9 billion has been automatically used to make-up delayed payments to school districts. If these automatic payments that were imposed by the previous legislature were not in place, the state would have a positive budget forecast of more than $1 billion.

So why would Gov. Dayton propose raising taxes by $3 billion when state revenues are growing more rapidly than current spending and the state budget forecast for the 2016-2017 biennium indicates there will be a surplus?

The answer is simple. Gov. Dayton is obsessed with increasing the income tax for those who earn more than $150,000 a year. Gov. Dayton appears to have an issue with high income earners. He somehow believes that those who have more resources should be paying more in state taxes, regardless of the current revenues. The governor is compelled to raise taxes on those earning more than $150,000 a year despite the fact that the state is bringing in more than enough revenue to meet its current obligations. Dayton began his drum beat for higher taxes three years ago at the outset of his campaign for the Governor’s Office. During the next eight months of this campaign, he continued his mantra of “taxing the rich.” After he was elected in November of 2010 he again called for a massive income tax increase to address a projected $5 billion budget shortfall.

In January of 2011 Dayton called for a 10.95 percent top income tax rate and a 3 percent tax surcharge on incomes over $500,000. Fortunately his tax proposal was met with steadfast resistance from the Republican legislative majority. The result was a budget stalemate that lasted over three months. In the end, state spending was increased by double digits but there was no general income tax increase.

As a result Minnesota’s economy has continued to improve and so has the state’s budget outlook. Revenues continue to exceed the forecast, yet these facts don’t deter Gov. Dayton from his constant desire to increase taxes on hard working Minnesotans.

In Gov. Dayton’s call for higher taxes on all Minnesotans, he points to past budget deficits as the reason to increase revenue. The real cause of our state budget deficits over the last 10 years has been excessive state spending growth, not the lack of revenue. YES, state revenue growth certainly slows when economic activity declines, but as the economy rebounds so do state revenues.

Currently the DFL legislative majorities and Gov. Dayton believe that state spending should always outpace state economic growth. The result is predictable; budget deficits. It’s apparent that Gov. Dayton wants state spending to outpace current state revenue growth, because without a huge income tax increase, Gov. Dayton and his DFL cronies won’t be able to achieve their desired rate of spending growth.

Let’s be clear, the governor wants more tax revenue so he can spend more money; it is not to address our current contrived budget shortfall. His goal has been to make the current revenue surplus disappear in order to justify a tax increase.

 

Phil Krinkie, a former eight-term Republican state rep from Lino Lakes who chaired the House Tax Committee for a while, is president of the Taxpayers League of Minnesota. You can contact him at: philk@taxpayersleague.org.