Monday, June 27, 2011

A Dialog with an ardent Mark Dayton Supporter

The rational discussion about what is best for Minnesota, and all of her citizens, has been submerged as the Governor ignores three offers from the legislature while he insists on raising taxes and spending.  As an example, a friend of mine sent me a dialog he had on Saturday with a door knocker supporting Governor Dayton's agenda.  It is instructive in the way the public dialog has evolved.  The real events have disappeared in an unwavering zeal of  "tax the richest 2%". 
Today (6/25) I had a chance to talk with a SEIU Person in her mid 20’s who was canvassing a neighborhood.  Her start off pitch was the extreme high pay/bonuses the top CEO’s receive and the large stockpiles of money companies are holding onto. It would really help the economy and the Union people if that money was spent.

Of which was a segway into the Top 2% need to pay more taxes in Minnesota.
My questions to her were and her Answers:

Why are Companies Stockpiling their money and not spending it?    Her Answer  – Don’t Know.

What percent of the total money made in Minnesota a year goes to the top 2%?    Her Answer  --  Don’t Know.

What percent of the income tax dollars Collected by the State of Minnesota
comes from the top 2%  -    Her Answer  -- Don’t Know.

What was Minnesota’s last two year General Dollar budget?   Her Ans. --  Don’t Know.

What is the next two year General Dollar Budget that has been approved by the legislators, that Mark Dayton vetoed?    Her Answer  --  Don’t Know.

By this time she (SEIU person) asked me why I was asking so many questions.
My Answer was: that I wanted to educate myself, as to what you knew about the topic at hand and since you cannot answer a single question that I have asked . . . it must be really embarrassing for you to be promoting “Minnesotans for a Fair Economy / SEIU” and you know absolutely nothing about the topic.

Do I need to mention that by this time she had climbed into a Van with her SEIU Paid friends and was driving away?

As I always say. . . What Country.

The answers she didn't know make all the difference in the debate:

Companies are standing on the sidelines for a number of reasons.  The most significant being the uncertainty of what an employee will cost in health care and taxes.  

The top 1% in the US pay 38% and the top 5% pay 48.72% of the total income tax bill already.  In Minnesota the top 10% pay 57% of the state income tax.  The fragility and failure of the argument to simply increase taxes is shown in two reports:
"If just one of Minnesota’s roughly 6,000 households earning $1 million or more leaves the state, Minnesota has to attract 65 households earning between $48,000 and $66,000 to replace the lost tax revenue."
To recover the taxes paid by one household in the top 1 percent of income, Minnesota would have to attract 280 households earning $81,000 to $100,000, or 449 new households earning $53,000 to $67,000.
Source: Minnesota Business Partnership analysis of 2005 Tax Incidence Study

The 2009-2010 budget was $30 billion dollars with some additional from the federal stimulus.

The legislature has increased the 2011-2012 balanced budget to $34 billion and has made three overtures to the Governor to try to avert a shutdown, but Governor Dayton continues to demand even more increased spending to $39 billion, that has some unspecified reductions to $37 billion, and increased taxes. 

Only Governor Dayton can avert a government shutdown, because only he stands in the way of a bi-partisan balanced budget increase that has been produced by the legislature.
For a humorous exposition of Governor Dayton's desire to shutdown the state watch this iMovie

Wednesday, June 22, 2011

Taxes, Regulations and Killing Jobs

You've put your life savings into a small business that gives you a living and supports loyal employees and your community.  You love your company and want to keep your employees, but you have to deal with regulations and reporting about health care, employee benefits and retirement plans, State and Federal Unemployment Insurance Tax, Workers’ Compensation Insurance, FICA, sales and use tax, Dodd-Frank (now more than three million words in the Federal Register—or more than 3,500 11-inch-high pages), Sarbanes-Oxley, OSHA, SEC, Health Inspections, 1099 Forms, I-9 employment eligibility verification, state and local zoning and permitting, licensing, environmental and waste stream reporting, and even MPCA Industrial Storm water regulations.

Whew, its wearying just to find and list this small sampling of all the regulations. In total, regulation compliance sets a vary high bar of costs before you can even make your first dollar. Then you have to add on IRS, state, and local taxes and the myriad of rules with high costs of compliance (an example is $100,000 for a $2.5 million company, see below), before even paying the tax itself.

There are many business leaders that are warning our state and federal governments that they are hostile to business, and to its consequnces.  Hostility to businesses is a job killer.

3M chief warns Obama over business regulation
February 27 2011 Mr Buckley, who has run the diversified manufacturer [3M] since 2005, said: “There is a sense among companies that this is a difficult place to do business. It is about regulation, taxation, seemingly anti-business policies in Washington, attitudes towards science.”

He added: “Politicians forget that business has choice. We’re not indentured servants and we will do business where it’s good and friendly. If it’s hostile, incrementally, things will slip away. We’ve got a real choice between manufacturing in Canada and Mexico – which tend to be pro-business – or America.”
True Job Creators Need a Voice  By Bernie Marcus
I worked hard to make my own small company into a big one but I never could have succeeded if I had faced the avalanche of impediments that our current government hurls down upon this generation of entrepreneurs. The White House's job creation strategy is to threaten higher taxes on anyone making more than two hundred thousand dollars a year and to appoint yet another council on jobs. Does anyone really believe this will create the jobs this country needs?
Overregulation, unfair taxes, and new mandates, like the controversial healthcare bill, are choking these job-creating businesses before they can get off the ground. The President's State of the Union Address included calls to increase trade and cut corporate taxes, all things that help big businesses alright, but do little to help the small enterprises and start-ups that are the engines of economic growth. They need relief from the alphabet soup of regulations that stifles them and therefore chokes hiring.
Taxes do matter to businesses Article by: DOUG BAKER
Recently a retired business leader offered his opinion on these pages that increasing personal income taxes has no impact on business decisions or economic growth ("The governor's budget plan won't send businesses scurrying," June 9).

I have two reactions to that point of view: First, many in the business community strongly disagree -- and second, focusing on revenue generation misses the point and delays action on the more important issue -- unsustainable increases in government spending.

It's no secret that Minnesota always has been a high-tax state. An April 2010 report from the Itasca Project, which highlighted our region's strengths and weaknesses, identified Minnesota's uncompetitive tax structure as one of the main barriers to job creation.
Our global competitors and the majority of U.S. states -- led by a number of prominent Democrat governors -- are moving toward lowering taxes, prioritizing government spending and building a more supportive business environment in order to attract jobs.
Small Businesses Speak Out Against Tax System
March 14, 2005 -- America's tax system hurts small businesses and deters would-be entrepreneurs, researchers and business owners told President Bush's Advisory Panel on Federal Tax Reform Tuesday.

"We have heard two strong messages: compliance costs and predictability," said Connie Mack, the chairman of the 9-person Advisory Panel and former Florida Senator.

Small businesses, said the senator, are disproportionately hurt by the complexity of the current tax system, most notably because of the enormous costs required to comply with the Internal Revenue Services. According to David Hurley, the owner of Landmark Engineering and one of the persons who addressed the panel, a company with $5 million of revenue spends the same on compliance as a company with $2.5 million: roughly $100,000.
When it comes to attracting businesses and jobs, corporate relocation firm Ecodev believes Minnesota can do better. January 21, 2011
Q: Why do you think the state [Minnesota] isn’t as strong as others like Nebraska and Texas?
» There’s a philosophical difference. In Minnesota, we just don’t have the mentality of investing in business, we think money should go to other programs. I’ve been in business here for nearly 30 years, and it’s always been that way. What we need to do is lower taxes across the board—business taxes are crippling here—and invest in businesses. Some people feel like it’s not right to put money into so-called “rich” companies, but the fact is that the state receives the money back, through payroll taxes, property tax, income tax.
Davids of the Dakotas worry Goliath Minnesota
January 21, 2011 The Washington, D.C.-based Tax Foundation confirms Republican tax claims. It annually looks at how states tax businesses, and the latest rankings show Minnesota in 43rd place. South Dakota has the best business tax climate, the Tax Foundation says, with North Dakota No. 20. Minnesota's other two neighbors, Iowa and Wisconsin, rank close to its position.

South Dakota and North Dakota economic deployment leaders said their states do things much like Minnesota Republicans want in Minnesota, such as giving businesses a stable environment.

Executive Director Bryan Hisel of the Mitchell, S.D., Area Development Corporation said consistency in business-related policies, such as taxes, is vital.

Marvin's John Kirchner explained why the firm expanded to North Dakota in the last several years: "The regulatory and tax climate in North Dakota ... tend to be more friendly toward the business."
Then if the tax and regulations aren't enough of a road block, you can have the federal government throw in legal problems for your efforts to locate in the best area for your economic development.

Boeing Labor Battle Is Poised to Go Before Judge
June 13, 2011  Barring a last-minute settlement, lawyers for the National Labor Relations Board will begin arguing before a Seattle judge on Tuesday that Boeing broke the law by building a new, nonunion production line in South Carolina instead of expanding its unionized operations in Washington State.

The case has stirred a political firestorm. Republicans have joined business leaders in accusing the labor board of trying to sabotage right-to-work states as well as the fundamental right of corporate managers to decide how and where to run their businesses.
The conclusion is once again, policy has consequences, bad policy hurts a lot of people.  Governor Mark Dayton's desire to increase taxes, increase spending, refusal to negotiate and to compromise in any fashion is ever more evidence of his addiction to bad policy.

Tuesday, June 14, 2011

It's the Spending Mr. Dayton!

The discussions of the federal debt and spending vs taxation seem eerily similar to our discussions here in Minnesota.  The main difference is scale and the fact that the federal government can print money when it needs it, while the States cannot.  Governor Dayton wants to take us down the road described in each of these articles, continuing and increasing our problems.  He wants to greatly increase spending, far beyond the already increased spending of the legislatures budget (see Greece).  A budget that, to get our fiscal house in order, really should contract rather than expand spending.  That's why Alan Greenspan strongly recommends Ryan's Budget proposal.  Governor Dayton's inflated spending is the root of the deficit issue, not revenue.  Revenue estimates for next years are higher than the previous biennium, but Dayton's spending excesses simply outstrips our capacity to grow, and will ultimately inhibit it.

US Is in Even Worse Shape Financially Than Greece: Gross
Much of the public focus is on the nation's public debt, which is $14.3 trillion. But that doesn't include money guaranteed for Medicare, Medicaid and Social Security, which comes to close to $50 trillion, according to government figures.

The government also is on the hook for other debts such as the programs related to the bailout of the financial system following the crisis of 2008 and 2009, government figures show.

Taken together, Gross puts the total at "nearly $100 trillion,"

Alan Greenspan describes himself as a "small government, free-market economist".  But being a banker, he fears the debt more than taxes, and believes raising taxes is needed to close the debt gap, as well as reducing spending.  That's basically the opposite of Dayton's plan to increase both dramatically.
Greenspan 'Scared' Over Deficit
"If I had my own way, I like the Ryan budget in all respects and I think that essentially that sort of thing is what I would vote for if in fact we're voting," he said. "But the problem essentially is that is not going to get a majority vote in Congress or be signed by the president of the United States. The question is, what's my fallback position?"

Deficits: Spending, Not Revenue, Is to Blame
Total federal program spending, which is projected to reach 26.4 percent of gross domestic product (GDP) by 2021, has an undeniable impact on the baseline. Indeed increased spending—not insufficient revenue—is the cause of worsening deficits, as this graph from Heritage’s 2011 Budget Chart Book illustrates.

Mitch Berg at does a great review of the recent articles from opposing views of two businessmen who have been in the Strib recently. Doug Baker, CEO of Ecolab, elucidates why high taxes cripple improving a business climate.  He makes two very telling points:
1) If you personally have a choice between accepting a job in Minnesota (high tax) or a Tennessee (very low tax), when the option presents itself, many choose the location that leaves you personally more money to improve your quality of life. That is Doug Baker's point about recruiting.
"My experience, which is shared by the majority of my fellow business leaders in Minnesota, is that personal taxes do matter. It's an issue that frequently comes up when recruiting people or transferring people to Minnesota.
Quite simply, our high personal income taxes are already a barrier to attracting and sometimes to keeping top talent. Following Gov. Mark Dayton and enacting the second-highest tax rate in the nation would hurt our state."
2) Companies do detailed multivariate analysis to determine where they locate or relocate. They are also heavily influenced by those things that hit the bottom line heavily.  The progressive world view cannot acknowledge this, but as Mr. Baker states:
"There also have been recent headquarters moves that cost Minnesota thousands of jobs -- MoneyGram comes to mind -- which I strongly believe was motivated more by personal income tax rates than anything else (in my opinion).
But you don't have to take my word for it. According to the U.S. Bureau of Labor statistics, Minnesota employment growth has lagged the U.S. rate for a decade. More than 1,200 small and medium-sized businesses left the state from 1997 to 2008."

3M also made that complex analysis when they decided to move a portion of operations to Austin Texas years ago. In the 1980's 3M threatened not to build a new office in Minnesota unless corporate taxes were reduced.  There were a number of issues in that decision, but the end result was a loss for Minnesota.  3M recently announced another, much smaller, contingent of 55 jobs that will be relocated to Texas.  I don't know if 3M has given any guidance on why the move, but Gov Perry of Texas has in his newsletter.
Angleton Assistant City Manager and Economic Development Director Patti Worfe said. “We are thrilled that the combination of a fabulous quality of life, a skilled workforce and low cost of living were integral factors in 3M's decision to move their corrosion manufacturing plant to our city, and we look forward to a long-standing relationship.”
Policy has consequences, bad policy hurts a lot of people.

Sunday, June 12, 2011

Minnesota Budget Impasse?

The current state of the budget discussion relates to these four levels of spending:
$30.7 billion  Last year's budget
$34 billion    Republican budget offer, a $4 billion increase,
               matching the amount of revenue currently available
$37 billion    Governor Dayton has made a proposal to come down to this level from
$39 billion    Dayton's starting position, which is a 22% increase in spending

The 2011 Education and Courts budgets have already matched Governor Dayton's requests.

The 2011 Legislature finished their work on the budget and had the legally required balanced budget on Mark Dayton's desk on the required date, May 23, which he promptly vetoed.

Contrast that with results in 2009
"The 2009 Legislative Session ended in May with the job only partially done. Legislators and the Governor spent the session attempting to negotiate a solution to a $4.6 billion state budget deficit for the FY 2010-11 biennium. As the legislature reached the constitutionally prescribed adjournment date on May 18, a $2.7 billion deficit still remained. After the session concluded with no negotiated agreement, the Governor exerted his authority to unilaterally “unallot” spending to resolve the remaining deficit and bring the budget into balance."

In the 2009 Legislature, the final results on education had been
"The governor {Tim Pawlenty] proposed a small increase to K-12 education funding, the [Democratic] House held its K-12 budget at current levels and the Senate reduced K-12 spending by 3.2 percent."   
So legislative concern for education "cuts" was not present in the budget process in 2009.
How are Governor Dayton's Commissioners working with the legislature to try to resolve the issue? 

Sen. David Hann Sets Record Straight On GOP Balanced Budget Compromis. In speaking to Commissioner Franz, a representative of Gov Dayton (partial transcript)

I understand you have a political duty to represent the Governor...However I do not think it is fair or accurate to say that our budget raises, whatever amount of money you say we raise in property taxes, unless you can show us what page of our budget has those tax increases on it that is not an accurate or truthful statement. Now you testified the other day that in you in your analysis you believe that using some kind of dynamic figuring that you can say that when we do certain things at the state level then  local jurisdictions are going to decide on their own to raise taxes. Although in your chart here it shows Property taxes have gone up every year since 1995, and I don't think Republican budgets have been passed in the State of Minnesota every year since 1995. So there's clearly something else going on that's causing property taxes to go up, rather than Republican budgets.  And so what we are trying to get at here is the effect of the taxes that are being proposed by the Governor at the state level vs a budget that doesn't propose any taxes at the state level
I understand the political rhetoric to describe things in a certain way, but it is not truthful if you look at what the budget that we passed actually does!

Governor Dayton's May 16th budget "proposal" contained a statement that said he was going have $1.8 billion in cuts.  As of June 7 the Governor has no plan.
June 7 2011 Sen. Parry: asks "Where, are you going to make the cuts, in Nursing homes like the Governor originally wanted, by 2.5%, are you going to cut the veteran's?  What are you going to cut, how can we start to even work with you if do not tell us where you are going to take the cuts"?  Dayton's Commissioner (Schowalter) responded "I cannot give your details for a proposals that do not exist". 
Commissioner: Details for Governor Dayton's Budget "Proposal" Do Not Exist

What do some other Democrats from the legislature have to say about the legislature proposed budget?
Sen Thomas Bakk, minority leader
Last biennium this senate spent $30 billion dollars and some change, this next one we are going to spend $34 billion, $4 billion dollars more.  Just want to remind people that on the campaign trail said they were going to come here and cut spending, this budget under these targets is going to spend $4 billion more than the previous one.
Even Democrats Know We've Already Compromised

Even Democrats Know This Isn't An "All Cuts Budget"

Senator Ted Lillie made an excellent summary of the budget discussion issues at Thursday's (June 9) OBPA Eggs N' Issues.  He is one of the six legislators in negotiation with the Governor.  He feels that it is going very well.  Emphasizing that "it has been assertive and direct, but not been confrontational to the point of tearing apart ... we are working hard to find a solution that meets the needs of people and businesses in Minnesota."
"We have tried to meet in the middle with half of the budget coming up to that level, but the Governor is not ready to do that yet. Facts' are stubborn and this budget is the largest budget in the history of Minnesota.  We feel its a reasonable budget, its a reasonable offer, and it one that we can accept as a State.  And it would be a shame if the Governor would choose to take us to a shutdown over a tax increase that just penalizes the wealthy vs trying to serve all of us."

 The ball was and is entirely in Mark Dayton's court for negotiation, when he made the unprecedented decision to go to a 3rd party mediator.  A decision he then reversed, thankfully.  The legislature budget is halfway between last years budget and Dayton's sky high budget.  The legislature budget matches the current revenue projection, while not raising taxes and meeting all real needs.  So why is there still a threat of government shutdown?

Is Governor Dayton trying to negotiate in good faith, or is another agenda playing out?  An agenda that is not an attempt to do what's best for Minnesota, but to simply get his way at all costs.  Indications, from a leaked email, show that there very well may be motivation from Dayton's camp to allow or force the shutdown to capitalize on the chaos that would ensue.

Saturday, June 4, 2011

Dayton's Lopsided Budget Plan

We have a spending problem in Governor Dayton's Minnesota.  Expansion of programs, new entitlements, a limosine for every staff member.  Oops, sorry that one is not there, though there may be some dissapointed Dayton staffers who were expecting them.  But abundant increases for many special interest groups abound in Governor Dayton's vision of what you should be paying for.  We have enough money to budget for everything we need, we do not have enough money for a 22% increase in general fund spending from $30 to $37 billion.

The Legislatures plan increases the annual budget from last years $30 billion to $34 billion, an increase that many fiscal conservatives wish were significantly less.  However this was part of the compromise process that was done in developing the budget with Democratic legislators and with Mark Dayton's, late to the discussion, staff. Governor Dayton however insists that the "all cuts budget" budget must be raised to $37 billion.  How an increase from $30 to $34 billion can be referred to as an "all cuts" budget beggars the imagination.

No Reform to Improve Effectiveness
Dayton's budget is a continuation of same old way .
The status quo approach prevents real reform to change and improve that is in the legislature's plan for how we accomplish our goals in education, health and human services, environment and energy (here and here), and welfare

Killing Jobs
Dayton's increased spending and taxes budget will have very damaging results on jobs in Minnesota.  Businesses currently are waiting to find out the tax burden and employee costs that they will have. Sadly other states will be far more attractive to cash strapped Minnesota businesses.  The jobs will be taken elsewhere, and Minnesota workers will suffer the consequences of bad policy.
January 7, 2011 St. Paul, Minn. — Gov. Mark Dayton laid it on the line to state business leaders Thursday night when he told the Minnesota Chamber of Commerce that Minnesota is under taxed.

Minnesota Chamber of Commerce president David Olson said his organization aims to work with Dayton on three key areas: education, streamlining state regulations and job creation. But Olson argues Dayton can't put an emphasis on jobs and continue his push to raise taxes.

"It's not a message that other states are doing around the country," Olson said. "My biggest fear is that I have members of ours who are being contacted everyday by other states that say 'Come to our state, we'll build your plant for you. We'll train your people.' The best thing we can do here is say we like our businesses. We want to do what we can to keep them here and expand here."

Ignoring National Trends
Dayton is far out of the mainstream that is being followed in virtually every other state.  He ignores the lessons learned by nearly every other governor, republican or democrat, spending must be gotten under control.  These are real decreases in spending, not the "reduction in the increase" that is the negotiated Minnesota Legislature plan, which Mark Dayton derogatorily refers to as the "all cuts plan".
Most governors are proposing major spending cuts.  In the three years since the recession began, states already have imposed cuts in all major areas of state services, including health care, services to the elderly and disabled, and K-12 and higher education. [9] 
At least 39 of the 48 states that have released initial 2012 budgets are proposing major cuts in services next year, on top of cuts already implemented in all those states since the recession began.  In nearly four-fifths of the 44 states for which the necessary data are available, governors are proposing to spend less next year than their states spent before the recession hit, after adjusting for inflation (see Figure 1).  On average, those 44 states plan to spend 9.4 percent less than their states spent before the recession, adjusted for inflation.

The unsustainable plans of Governor Dayton will result in a 20% shortfall.  Businesses will leave, jobs lost, people will suffer.  The budget that was created by the entire legislature looks to provide a brighter future for all Minnesotans.