After a week of gloomy predictions of a new deficit in the $500 million to $1 billion range, the Minnesota Management and Budget Commissioner came forward last Thursday with the happy news of, instead, an $876 million surplus, after four years of deficits. State economist Tom Stinson declared Minnesota to be a “bastion of economic strength that is outperforming the nation.”
In May there was a furious battle between Democratic Governor Mark Dayton and the Republican legislature over how to balance last year’s budget, facing a $5 billion deficit. The legislature wanted, among other things, to freeze state salaries and cut state employees by 15%. Dayton called that “barbaric” and “un-Minnesotan,” and insisted upon a new tax rate for the rich of 10.95%, second highest in the nation.
A certain astute editorialist pointed out, at the time, that half of those tax payers were small businesses whose business and personal taxes were one and the same, and that the new tax would be capital transferred from job generators, reeling in a bad economy, to government so that it might not have to lower its growth rate.
The stalemate resulted in a 20 day shutdown of state government, the savings from which are now contributing to the welcome, surprise, surplus. At that time it was discovered that the worst consequence of the shutdown was that beer distributors and other enterprises could not access the government functionaries who collect the taxes and issue the licenses and permits allowing them to do business day to day. Governor Dayton’s plan to soak the rich is sunk, hopefully a lasting embarrassment to his administration after this simple proof of the folly of his approach.
Economic arguments can be impossibly complicated, but by now we know that taxing a sick economy is like bleeding a sick person, a hopelessly stupid and unintuitive practice that should be relegated to the historic ash heap. It is difficult for politicians like the Governor, with no real experience outside of politics, to grasp the basic economic reality that government is secondary to the private economy and dependent upon it, rather than the opposite.
President Obama, equally ignorant of real work in the real world, and innocent of experience outside of government, should be educated by his political opponents as to the outcome of Minnesota’s budget battle, and forced, like Governor Dayton, to abandon the quack prescription of tax increases on a weak economy.