How do we get to a deal?

The regular session of the Minnesota Legislature has been over for three weeks, and we’re no closer to a budget deal today than we were then.  Neither side has made any significant move over that time, and the state government shutdown looms two and one-half weeks away. (Keep in mind, though, that Governor Mark Dayton has already made significant compromise up to this point.)

Republican legislative leaders are holding fast to their strategy of making one budget offer and then hoping that Governor Dayton will blink at the last second to avert the shutdown.  Given the polling that shows strong public support for the Governor’s position and the sharp differences in values expressed in the two parties’ respective budget proposals, that’s a strategy that seems doomed for failure.

So, how do we get to a negotiated settlement that doesn’t gore anyone’s ox too badly?  Governor Dayton isn’t going to sign a bill that lacks new revenue, while Republicans ardently seek to avoid tax increases. 

Irreconcilable?  Maybe. 

There are some possibilities that could thread the needle and be politically palatable in this environment.  Let’s look at them (in declining order of probability — and please note that inclusion in the list does not imply my endorsement of these measures):

Gambling:  Various proposals have been floated over the years — the racino (slot machines at Canterbury Park and Running Aces), casinos at Block E or the Mall of America, and allowing slot machines in bars.  Public support is strong for such proposals, but legislative support is lukewarm.  Many legislators have moral issues with an expansion of gambling, while other legislators are concerned with potential damage to American Indian communities.  Potential revenue:  $300 million to $1.2 billion for the biennium, depending on the proposal.

Liquor/Cigarette Taxes:  Always a convenient option for governments looking to bring in additional revenue, some have advocated increasing the taxes on these items (again).  You may have to come up with some clever Pawlentyeque nomenclature for it (like the last cigarette tax increase was called a “health impact fee”) to help make it fly, though.  Let’s say a two-cent per drink tax increase on alcohol and an additional 25 cents per pack on cigarettes to keep it somewhat modest.  Potential revenue:  $190 million for the biennium.

Temporary Tax Surcharges:  Instead of making the income tax portion of Governor Dayton’s budget proposal permanent, make it temporary — applying to the next biennium only.  The main portion of the Dayton tax plan includes an increased income tax rate for single filers with adjusted gross incomes of $150,000 or higher and couples with AGIs of $250,000 or higher, or the top 2% of Minnesota taxpayers.  Potential revenue:  $1.8 billion for the next biennium.

Sales Tax Expansion/Reform:  Sales tax expansion and reform is one of those things that is frequently talked about, but nothing ever seems to happen.  Including such a proposal in the current budget would be problematic given the lack of legislative hearings for such a significant change, but let’s check out a possible scenario.  Currently, all services and many classes of goods are exempted from the state sales tax.  We could begin taxing services and remove many of the exemptions, lower the overall rate and still raise more revenue for the state.  For instance, expanding the sales tax to business and consumer-purchased services (excluding legal and medical services) and removing exceptions for all goods except food, clothing, medical products including prescriptions and eyeglasses, and fuel while lowering the base sales tax rate from 6.5% to 4.5% would raise about $1.1 billion over the next biennium (based on numbers from the Coalition of Greater Minnesota Cities).  Since the sales tax is highly regressive, let’s give half of that amount back in income tax reductions, primarily to the bottom half of the income distribution.  Potential revenue:  $550 million for the biennium.

How does it end?  My guess is that we’ll see a form of gambling passed (racino seems like the most likely) along with a pared-down temporary income tax surcharge (top 1% or millionaires) designed to get us to a total budget of about $35 billion.  Unfortunately, it doesn’t seem like that will happen until we’ve gone through the pain of a government shutdown.  And, we’ll get to fight the budget battle all over again in two years because our leaders will have (again) done nothing to put this state on a more stable financial course.

 (photo courtesy Shutterstock)

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3 Responses to “How do we get to a deal?”

  1. Sean- I can tell you’re a Democrat since most of your solutions involve tax increases or expansios. 🙂 If you will remember though, Dayton and the Democrats wanted a $36 billion dollar budget while the Republicans wanted a $32 billion dollar one. They are now at $34 billion, which to me seems like a compromise. How can you say that Republicans haven’t compromised? I would also like to have you show us the polls that show broad public support for what Dayton is doing. I think its just the opposite actually. I know democrats that want their Dayton vote back.

    • As I noted in my post, Paul, these aren’t my solutions — but rather what might be politically possible compromise positions between where the two sides are today. What I would prefer would be more fundamental reform of both how we tax and how we spend. Neither party has shown an ability to truly address the underlying causes of our ongoing budget problems. That’s very disappointing, to say the least.

      You mention that Republicans “wanted” a $32 billion budget. Allow me to borrow a line of questioning from your friend, Mr. Sanborn. Where can I see that $32 billion budget proposal?

      Because, in fact, the first budget proposal offered by the legislative majority was a $34 billion budget, which reflects a cut of about half a billion dollars from the current budget when compared on an apples-to-apples basis (counting the stimulus dollars that were spent on ongoing programs and the K-12 funding shift that we’re not replicating in the next biennium). Months later, the Republican majority is still standing on that same $34 billion number with the only change being some of the spending shifted around from one department to another. That’s not compromise.

      Meanwhile, the Governor has flipped his proposal from two-thirds tax increases to two-thirds spending cuts and cut his spending level by nearly $2 billion. That’s compromise.

      As for polling, how about these:
      https://brickcity.wordpress.com/2011/06/01/new-poll-shows-high-support-for-dayton-budget-proposal/
      http://www.surveyusa.com/client/PollReport.aspx?g=be72dc6c-d8fe-4da2-ab5d-07ce56bc7bee

      Dayton job approval poll:
      http://www.startribune.com/politics/statelocal/121836484.html

Trackbacks/Pingbacks

  1. Disappointing | Brick City Blog - June 30, 2011

    […] Let’s hope that both sides can finally begin to work together and give Minnesota the moderate compromise that voters demand and deserve.  GOP leaders need to accept some forms of new revenue, and Gov. Dayton will likely have to take on some additional budget cuts.  A budget in the $35 billion range is achieveable and would represent a good-faith compromise. […]

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