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Commentary -- Tax bills fair response to shortfall

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Morris, 56267

Morris Minnesota 607 Pacific Avenue 56267

By Dane Smith

The Senate and House tax bills (S.F. 2074 and H.F. 2323) represent a fair and reasonable response to Minnesota's historic state revenue shortfall.

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The bills recognize that our state's quality-of-life and business success have been built on a foundation of wise public investment in human capital and infrastructure: education; transportation and public works; health care; and environmental protection. The damage done to these public resources - through previous no-new-taxes strategy of budget-balancing this decade - has been significant. This damage will be compounded by a cuts-only approach to budget-balancing.

The most important feature of both bills is that they at least partially restore the tax rates that existed on top-income households before the deep and permanent income tax cuts of 1999 and 2000. Those rates during the 1990s coincided with dramatic growth in jobs and personal income and Minnesota outperformed most of the nation on measures of business growth and vitality. Key facts to remember as context for the Senate and House revenue proposals are these:

Minnesota's "Price of Government," an official state government measure of state-local revenues as a percentage of income, is considerably lower than it was in the 1990s. Total spending as a percentage of income currently stands at about 16 percent, compared to about 17 percent through most of the 1990s. That amounts to about $2 billion less per year in the total Price of Government.

Numerous national studies show a concentration of wealth and income at the very top over the last 30 years. Most economic growth in the last decade accrued to top-income households. At the same time, the state's highly regarded Tax Incidence Study shows that the top 1 percent and top 10 percent of households pay a smaller percentage of their total income in state-local taxes than do those in the bottom 90 percent of incomes.

Minnesota's rankings on taxes have dropped dramatically, even as economic performance has slumped and our quality-of-life indicators have also begun to slide. Minnesota now ranks about 20th among the states in state-local taxes as a percentage of income and about 30th in all state-local revenues as a percentage of income (including such non-tax revenues as tuition, fees and federal aid).

Dane Smith is the president of Growth & Justice, a non-partisan advocate for fair taxation and public investment.

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