After the Forecast: Adjusting the Brick City Budget

Yesterday’s release of the state’s February Economic Forecast provided a dose of good news regarding our budget scenario, trimming $463 million off of the projected deficit for 2014-15.  While Governor Mark Dayton has indicated he will release his updated budget proposal the week of March 11, I’ve made changes to my original “Plan C“, and I’ve detailed them below.

Recall that what I was trying to accomplish with my proposal were the following things:

  • Minimize middle-class impacts as it relates to sales tax changes
  • Make a meaningful payment towards the remaining K-12 school funding shifts
  • Minimize negative impacts that come with expansion of sales taxes to B2B services

Having a $627 budget deficit instead of $1.1 billion makes it significantly easier to close the budget gap while accomplishing the three goals from above.

Let’s talk about the adjustments I make on the revenue side first.  My total revenue increase has been cut by over 40%, made up of the following components that have changed:

  • Business sales taxes are eliminated in this proposal
  • The new fourth bracket for high income individual income taxpayers is pared back by 25%
  • Sales tax rates are lowered to 6.25%, and consumer services are added to the sales tax base.
  • Income tax cuts for the lowest two brackets are implemented, meaning all married couples filing jointly will get a tax cut on their first $135,000 of income.

Combined, the last two bullet points are revenue-neutral and designed to minimize impact of the sales tax base expansion on lower and middle-income taxpayers.

Similarly, I pare back spending increases by a similar percentage.  While I tend to agree with politicians who point out the need for investment in critical areas of our budget like education, transportation, and health care, it’s not politically or financially prudent to propose tax and spending increases of the scope found in Governor Dayton’s budget given the smaller deficit we now face.  There needs to be balance, and a recognition that moving too fast to increase taxes and spending in a still-fragile recovery may not produce the anticipated results.

  • K-12 education sees an increase in spending of $380 million over the current forecast, made up of a $200 million partial repayment of the remaining funding shift, $50 million to fund optional all-day kindergarten, $44 million to expand early childhood programs, and $84 million in increased special education.
  • $80 million in increased higher education funding directed towards expanding grant programs to make college tuition more affordable
  • Dayton’s metro area transit sales tax plan is kept in place, which shifts some transportation funding out of the general fund budget

Here’s how it all breaks down:

brickcitybudgetfebupdate

What are your thoughts?  Let me know in the comments.

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10 Responses to “After the Forecast: Adjusting the Brick City Budget”

  1. Still have to do the unfair taxes on those with the most, eh? I mean, we already pay the bulk, but why not more? There’s no need to raise any taxes. Period. The schools are already getting a billion in entitlements. Perhaps that shold be enough. Let’s finish cleaning up state government, and get this unending growth under control.

    • “Fairness”, I suppose is in the eye of the beholder.

      Currently, the average Minnesota taxpayer pays 11.5% of their income in state and local taxes. Those in the top 10% of the income distribution pay 9.8%, while everyone else pays 12.3%.

      Under my proposal (and these are very quick calcs, but they should be in the ballpark), the average state rate would go up to 11.7%, with the top 10% paying 10.9% and the bottom 90% paying 12.3%.

      • Only income tax is based on income. We pay the most. Period. No other tax has any meaning against income. None. If that’s a big deal, then ditch those taxes and make everything income based, because this system is chuck full of lies and distortions. That facts are that the top 2% pay 30% of the income taxes in the state. And they pay the highest rate. Gas Tax, sales tax, property tax, etc. etc.etcc., etc. etc. etc. are not income based. If these are so distasteful and unfair, then work to get rid of them. Make the taxes flat purely on income and be done with it. No deductions, no excusess. Pay your fair share and shut the front door. Of course we’ll never get to that because then everytime the state wanted to increase spending, every single person would be on the hook. And opposition woul dbe united, and you would see government shrink faster than any politician could produce ever.

        Overhaul the tax code. Rather than lie to the public each and every day, the governor should be thankful for these wealthy souls who carry the largest burden. It is insulting to listen to his mindless drivel. Just like when he said the GOP cuts would be draconian, and here we are with a tremndous surplus, and a healthy state budget. He can’t stand to see how good this has been for MN. He’s a spend, spend, tax, tax, tax typical DFL’er who has no business running a lemonade stand let alone the state.

        • Do you think Dayton will reduce taxes now? Or will he still want to raise the same amount and just spend more? My guess is little changes, other than paying off the shift this time around. We know he thinks he’s was elected to raise taxes on the rich, even though it was really just because his fam had the good ol’ 13 hour sale, and too many people vote on name rather than substance.

  2. Dayton says he doesn’t want the sales tax increases to just be on consumers. Wait a sec? I thought this part was revenue neutral? Oops! He can’t even keep his own BS straight! LOL!

    • Dayton has claimed that the consumer portion of the sales tax (broadening the base and lowering the rate) would be neutral in its impact to consumers, with the business sales taxes representing the new revenue.

      Most folks agree that that the business taxes will largely get pyramided down to consumers, though.

      • When you think about it, they all do. That’s why paring down the size of government is so important. It all comes from our pockets eventually. Even tariffs are passed down to us eventually. Everything we buy has been taxed multiple times before we lay our hands on it. And we pay for that. Now interstate commerce may get us off of the hook for some taxation at the state level in business to business, but that is still detrimental to us when you really think about it. Every dime spent by the government should be wisely spent, and absolutely, as well as, measureably beneficial to the residents.

      • You might have missed my point. Now he says, (after the new forecast), that when he re-works the budget he doesn’t want the B2B sales tax dropped and add categories (I.e. broadening the base) just on consumers. He says that’s not fair, but if it’s revenue neutral, who cares? Why would it be unfair to just broaden the base if that’s a wash for tax payers? The problem is, that it isn’t, and never was a wash. He knows it. And he just admitted it. Because when you keep telling lies, it’s hard to keep up with them all. Too bad, most won’t notice.

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