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Monday, December 5, 2022

Jensen’s tax cut would require deep spending cuts Minnesotans of both parties will reject

You’ve certainly heard by now that Scott Jensen, the Republican candidate for governor, has suggested repealing Minnesota’s income tax, which generates more than half of all state general fund tax revenue. Last week, a Minnesota Reformer study revealed how this would disproportionately benefit the wealthiest individuals while necessitating significant increases in sales and property taxes that would disproportionately affect lower-income families.

However, unfair tax cuts are simply one aspect of the situation. According to Jensen, his tax decrease would need a 10% fall in general fund spending. Where would it originate?

Jensen’s audacious tax cut plan is based on the idea that state budgets are bloated with needless expenditure and that yearly spending rise is a sign of unrestrained generosity. But in reality, the cost of crucial public investments simply rises in line with the size of the economy, which explains why, despite divided party control, the budget expands every year in normal terms. Republican and Democratic-Farmer-Labor Party members may dispute on the magnitude of marginal budget increases, but Jenesen’s suggested net spending reductions are uncommon.

The independent Tax Policy Center’s analysis of census data reveals that Minnesota’s nominal operating costs have decreased just once since 1977, by a mere 0.5%. Effective budget cutbacks due to inflation have occurred more frequently — level expenditure with 1% inflation, for example, is equivalent to a 1% decrease — but even these occurrences have been uncommon and typically tiny, ranging from 1-3.5%. Therefore, Jensen’s first round of cuts would be much more severe than anything the state has seen recently.

Is this possible? Jensen frequently brings up the alleged Feeding Our Future scam and cost overruns for the Southwest Light Rail, but these are significant news events for a reason – they are unique cases. As unsettling as they may seem, they all together only make up a little portion of the expenditure. An actual Jensen government could have trouble finding the significant cuts he has promised, according to an analysis of key expenditure sectors.

At the most fundamental level, contrasts between Minnesota and other states don’t show the glaring overspending that Jensen and other fiscal conservatives would have us believe they do. While Minnesota has a high tax burden—ranking 12th in the country according to the conservative Tax Foundation and 9th according to the Minnesota Center for Fiscal Excellence—we pay lower fees and receive less federal funding than other states. Minnesota is anywhere between 17th and 24th in terms of overall revenue. We are not the wasteful state that Jensen and other state Republicans try to depict, in other words.

The larger global context is also important to note; in comparison to practically every other industrialized country, the United States raises and spends a much less proportion of its overall GDP on public goods and services. Therefore, despite the fact that Minnesota is not a high-spending state, it would be prudent for us to make more of an effort to match the social welfare spending of other nations that have lower rates of poverty, less crime, and better health outcomes.

Further investigation of the specifics does not help Jensen’s argument for waste.

E-12 education is frequently identified as a source of government waste, accounting for around 40% of the overall state budget. However, it is difficult to find proof that schools might operate considerably more efficiently. According to CFE, Minnesota’s public schools received the 20th-lowest amount of money per kid in 2020, and all around the state, bus routes were terminated and there were personnel shortages caused by poor pay. According to a recent analysis by North Star Policy Action, after accounting for attendance and inflation, Minnesota public schools currently get 6% less funding than they did in 2003. Reduced state funding for education would also result in controversial local property tax rises.

And those employed in the public sector who require assistance are not only limited to educators. While Minnesota is lacking at least 20,000 long-term care employees, who are mostly hired under the state’s Medicaid program, Twin Cities Metro Transit has increased bus driver pay and provided signing bonuses in an effort to prevent service cuts. Public defenders are quitting at a high rate despite managing up to 120 cases at once and sometimes earning tens of thousands of dollars less than prosecutors. Just a few examples.

It is quite difficult to envision a net savings from the existing baseline, even if the Jensen administration drags its time on raising money for these essential programs.

Although Minnesota’s spending does differ significantly from that of other states when it comes to health care, this does not automatically translate into savings. In a recent blog post on the Jensen proposal, former Minnesota House tax analyst Joel Michael noted that federal matching for state health care expenses meant that Minnesota would save just $0.50 for every $1 in health care savings.

The fact that Minnesota spends more on health than the national average is more significant. The conservative-leaning Minnesota Center for Fiscal Excellence compared Minnesota’s Medicaid eligibility level for children and pregnant women to that in five states without an income tax in a recent report examining Jensen’s plan. In contrast to states like Tennessee and South Dakota, where the coverage ranges from 130 to 200%, Minnesota extends to children whose families earn up to around 275% of the federal poverty level. Would Scott Jensen deny low-income kids health insurance in order to pay for his tax cut?

Communities eager to replace aging roads and bridges will give first priority to one-time payments to match and maximize federal expenditures in infrastructure. Long-term state expenditures would rise if the federal match was forgone, but Jensen has already committed the surplus to help close the revenue shortfall his tax cut would cause.

In other words, getting at Jensen’s cuts is not simple.

If there is any consoling news in this, it is that there may be strategies for slowing long-term expenditure increases. However, this probably necessitates bigger initial investments: For instance, a study of supportive interventions for unaccompanied children discovered that secure housing and other supports might cut social welfare costs by $300,000 per individual, saving $50 million in government funds with even a small success rate.

Unfortunately, it doesn’t seem like Jensen is thinking very logically. His unrealistic tax proposals exist to get support from a base that is thought to be anti-tax. Thankfully, responses to Jensen’s proposal show that Minnesotans from both parties are aware of its flaws.

Cedric Blackwater
Cedric Blackwater
Cedric is a journalist with over a decade of experience reporting on local US news, and touching on many global topics. He is currently the lead writer for Bulletin News.

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