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 ShotInTheDark.info 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.

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