A quick review of the letters to the editor in Minnesota’s newspapers over the last week shows a definite recurring theme. Specifically, readers from all areas of the political spectrum are disappointed, angry and frustrated that our Governor and legislative leaders seem incapable of reaching some type of agreement that will end the current government shutdown. In fact, a common theme in these letters is the idea of locking them up in a room and not letting them out until a deal is reached.
Now I am far from an expert in negotiations, but I would suggest that at the beginning it is important for both sides to agree on what exactly they are negotiating over. For example, if I am negotiating the price of a new car with a salesman, we may have two very different ideas regarding the worth of the car, but at least we both are talking about the same thing. But it appears that one reason why the current political negotiations have been so difficult progressing is that both sides simply are not negotiating over the same thing. Let me explain.
From the Governor’s perspective it is clear that he believes that he is negotiating to find a solution to resolve the current $5 billion state budget deficit. As such, he has proposed a multi-billion budget cut, along with an income tax increase on high-income earners. And when that didn’t fly he continued to propose a variety of budget cuts and revenue enhancements all designed to find the right combination of cuts and enhancements that would both close the deficit and be acceptable to Republican legislators. Others have also tried to suggest that in addition to sizable budget cuts there might be new types of revenue more palatable to our Republican legislative leaders. These include the establishment of 2 Racinos; a state operated downtown casino, increased liquor taxes, tobacco taxes, as well as a new round of bonding from future tobacco settlement funds. But alas, all have been swiftly rejected by our legislative leaders.
Why such apparent intransigence from the Republicans? Well it appears that from their point of view they are not negotiating to resolve the budget deficit, but rather they are negotiating the size of our state budget. Simply put, they believe that the appropriate measure of the size of government is found in the amount of money it spends and therefore any increase in revenue is an increase in the size of government. Accordingly from their perspective, no additional revenue is acceptable. A few examples will help support this notion.
Early in the legislative session Senator Julianne Ortman, Chair of the Senate Tax Committee made clear her desire to review all state tax expenditures. What exactly is a tax expenditure? Well the simple answer is that when the legislature passes a law to exempt certain products or groups of people from specific taxes that others have to pay it is recorded as a tax expenditure. Some may consider it a special tax break. And when government finances get tight, many argue that we just can’t afford all these special tax breaks anymore. So Senator Ortman declared her interest in reviewing these tax expenditures. Now please understand that some of these tax expenditures such as the exemption of groceries and prescription drugs from sales tax is something we all could agree on. But there may be others we certainly no longer can afford and repealing these exemptions would help close that budget deficit. For example, we all heard that if we repealed the sales tax exemption on clothing it would increase state revenues by approximately $250 million per year. But did you realize that repealing the exemption on consumer and business services such as legal or accountancy services from sales tax could yield 10 times that amount, or $2.5 billion per year? How about repealing the sales tax exemption on newspapers and magazines ($65 million); the exemption on telecommunications equipment ($26 million); or the exemption on farm machinery ($36 million)? In fact over the years dozens and dozens of such tax expenditures were written into Minnesota law worth billions of dollars that Senator Ortman simply wanted to review. But such a review never happened, for our legislative leaders have argued that repealing a special tax break is now defined as a tax increase. And while it would certainly help reduce the current budget deficit it would also bring in more revenue and therefore help grow the size of government.
Or how about Representative Runbeck’s bill to repeal former Governor Pawlenty’s JOBZ initiative that provides multiple income, corporate and sales tax breaks to businesses expanding or relocating in rural Minnesota. It was introduced on April 18 and that was the end of it, as it never received a hearing. But the words that epitomize this perspective was actually provided by Senator Mike Parry of Waseca, who was quoted on July 2 in the Mankato Free Press as suggesting that he and his Republican colleagues should pull back their current budget of $34.2 billion and replace it with a budget $2 billion smaller at $32 billion. Do you really believe that these are the words of someone who is serious about ending the shutdown?
So don’t be surprised if these negotiations stay stalemated for much of the summer. Until both parties agree to begin negotiating about the same thing it’s hard to see how any real solution can emerge that both sides can live with.
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