Commentary; Posted: 5/14/03

Tax hike not a long range solution

Duane Benson and David Olson
Guest Columnists

A recession isnít like ice cream ó two scoops arenít better than one. Thatís why it was surprising to hear the Federal Reserve announcing emergency plans to prevent a double-dip recession at about the same time that DFL leaders in the Minnesota Senate were unveiling a tax increase that would give Minnesota a second scoop of rocky road.

Tens of thousands of Minnesotans know first hand, that deep cuts in manufacturing and other sectors have hit Minnesota harder than other states.

And, the state economist tells us, we are recovering more slowly than the rest of the nation. While a tax increase may seem to some like a reasonable solution to the stateís budget crisis, itís not going to help bring jobs back to Minnesota.

Rather than ask how the private sector can share the pain, lawmakers should understand that the stateís budget shortfall is a product of an already painful recession. Unemployment is up, wages are flat and profits are down.

All this means less tax revenue than expected. The state needs to be part of the solution to the economic recovery, raising taxes would only make it part of the problem.

The attraction of simply raising taxes is understandable. During a decade of surpluses, state spending grew effortlessly from $14 billion in 1992-93 to $27 billion in 2002-03. More people making more money meant more tax revenue for the state. Spending went up while taxes went down. Everyone was happy.

But now we have fewer people making less money than expected. Keep in mind, tax revenues in Minnesota arenít declining. They just arenít growing as fast as anticipated.

In fact, tax revenues are projected to be 6.6 percent higher in 2004-05 than in 2002-03. Trouble is, spending is projected to increase 14 percent. No one is happy.

Itís easy to look at these numbers and conclude that we either need to reduce services to people or increase taxes to cover the bills. As leaders of the Coalition of Minnesota Businesses, a collection of 13 business groups representing more than 20,000 employers across the state, weíve been advocating a third option. We believe itís possible for government to become more focused, more efficient and more effective so that we can do more for those who need help with less taxpayer money.

This can simply mean using technology more effectively to increase efficiency and reduce costs. For example, currently only 4 percent of state transactions are done electronically, according to the Citizens League. The rest still involve costly paper shuffling.

Larger changes involve loosening restrictions so that state and local governments have more freedom to seek competitive bids for products and services. And still larger reforms involve targeting local government aid to cities that need it and directing financial assistance to individuals rather than the institutions that have sprung up to serve them.

Reform ó changing how we do things ó is never easy. And if we thought the current budget crisis to be an isolated event, reform might not be needed.

But demographers and economists have been warning us for years that when the baby boom retires, demand for government spending will grow while the tax-paying workforce shrinks. (Think Social Security and Medicare.)

Raising taxes isnít a long-term solution. We need to get a handle on spending, learn to live within our means and find ways to do more with less. So, do you want one scoop or two?

Duane Benson is executive director of the Minnesota Business Partnership. David Olson is president of the Minnesota Chamber of Commerce. They are members of the Coalition of Minnesota Businesses, a collection of 13 business groups representing more than 20,000 employers across the state.

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