It’s the Revenue, Stupid
Part one of a two-part blog
State government spending—properly adjusted for inflation and a variety of accounting gimmicks—is ten percent less during the current two year budget cycle than it was a decade ago and 1.5 percent less than it was during the previous cycle. Equally astounding is the fact that inflation-adjusted state government revenue is eight percent less than it was a decade ago.
At the same time that state general fund revenue has plummeted, the state’s population has increased by seven percent. In short, the state has over 300,000 more people than it did ten years ago and a lot fewer real dollars with which to provide public services to these people.
How do we square these facts with claims made by Taxpayers League President Phil Krinkie in a recent Politics in Minnesota (PIM) editorial, “It’s the spending, stupid”? An inspection of Krinkie’s claims reveals how he reached these misleading conclusions.
First, Krinkie claims state spending increased by 15 percent as a result of the 2011 budget compromise. He ignores all of the spending funded in the previous two-year budget cycle that was paid for with one-time federal stimulus dollars. He also ignores the school funding shift that artificially deflated spending in the previous cycle, to make it look like there was huge growth from the previous cycle to the current cycle.
If we properly adjust for these accounting maneuvers and the plan to sell our future tobacco settlement dollars for the sake of a one-time upfront cash fix, state government spending will be one-half billion dollars less in the current budget cycle than it was in the previous cycle and nearly four billion dollars less than it was a decade ago in constant FY 2012-13 dollars.
What about Krinkie’s claim that state government revenue has grown by 4.5 percent per year over the last ten years?
Over the last ten years, the revenue going into the state general fund increased at an annual average rate of 2.9 percent. Over the same time, the rate of inflation for the things that state government buys increased by 3.8 percent annually. In other words, the real purchasing power of state general fund dollars has declined at a rate of nearly one percent per year over the course of the decade. In fact, real per capita state general fund revenue in both the current and the previous two year budget cycles are at or near a twenty year low.
Krinkie also claims that Minnesota’s income tax is “hyper-progressive,” by which he means that we over-tax the rich relative to middle and lower income families. However, when we look at the entire state and local tax system—not just the income tax—Minnesota is closer to being hyper-regressive. For each dollar of income, the wealthiest Minnesotans—defined here as the top 2 percent—pay 20% less in state and local taxes than do middle-income families.
Check back tomorrow for a look at the outcomes this regressive system has produced and a how we begin moving toward fiscal fairness.