The Free Press, Mankato, MN

Editorials

May 12, 2009

Our View: Lawmakers: Don't worsen economy

As the well-meaning DFL-Legislature and the Republican governor negotiate to solve Minnesota’s $4.6 billion budget deficit, they should act on not only what they believe is right, but what they believe will work.

We have no doubt Gov. Tim Pawlenty believes that Minnesota already has too many taxes and the taxes are too high; we have no doubt DFL leaders believe the burden of those taxes is unfairly distributed to the middle class. Those beliefs are not likely to be points of compromise as we have seen in the recent back-and-forth.

But both sides should be able to recognize and agree with some points on just how their beliefs and resulting policy positions will impact Minnesota’s economy. We think they should compromise in a way that minimizes the risk of their policies making Minnesota’s economy worse than its current state.

A recent policy analysis by a University of St. Thomas economics professor and former small business owner suggest both the governor and DFL plans to solve the budget problem could have adverse affects on the economy.

Economics professor Marsha Blumenthal and former business owner Charlie Quimby did the analysis for Growth and Justice, which bills itself as a Twin Cities-based progressive think tank.

Using economic models and some common sense, the authors contend state spending cuts are likely to hurt the economy. Cuts to local government aid alone could cause the loss of 3,000 jobs. An earlier report by the Association Press suggested Gov. Pawlenty’s spending plan would eliminate 1,100 jobs of state workers.

The authors also contend that a tax increase on the wealthiest Minnesotans — an earlier proposed 8.5 pecent bracket on taxpayers who earn more than $250,000 — would likely reduce jobs. The tax hike on someone making $250,000 would be about $1,400 — not pocket change — but also not even 1 percent of their income.

Still, their economic models show such a tax increase could translate into a loss of between 907 and 5,443 jobs, of Minnesota’s 2.7 million total. That could translate into between $37 million to $220 million in payroll being lost. The tax, they estimate, would bring in $121 million.

In another example, a Free Press analysis of cutting 1,100 state employees at 2008 average wage rates shows payrolls would be reduced by $57.4 million. Cutting 2 percent of all state employees — 1,479 jobs — takes $77 million out of the economy.

The bottom line is that both DFL and Republican strategies for balancing the budget have downside risks. The key will be minimizing those risks. And because there is no precise and sure-fire way to determine the downside risk, a prudent decisionmaker would not put all their eggs in one basket.

That line of thinking suggests tax increases as well as spending cuts would be the lowest risk way to balancing the budget while minimizing harm to Minnesota’s economy.

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