October 17, 2008
It now seems likely that Congress will return to work in a “lame duck” session in mid-November. Leaders in both the House and Senate have indicated that another stimulus bill to address the deteriorating economy is in the works. Possible elements that could be included in the package include tax rebates, federal fiscal aid to states, a temporary boost in Food Stamp benefits, an extension of Unemployment Insurance benefits and an increase in funding for the Low-Income Home Energy Assistance Program (LIHEAP).
Declining tax revenues are also hitting the budgets of state governments hard. After closing a projected shortfall of $935 million during the last legislative session, Minnesota legislators will once again face a large projected budget shortfall when they convene in January 2009.
The Minnesota Budget Project sent a letter signed by 66 nonprofit organizations to the Minnesota Congressional delegation in September urging that federal fiscal aid to states be included as a key part of any second economic stimulus package. With Minnesota and other states facing new and deeper projected budget shortfalls next year, the need for federal fiscal aid to help the states is more urgent than ever. That is why we are reopening our sign-on letter to gather even more signatories. If your organization has not yet signed our letter, please join us today. Our new deadline is November 12.
In 2003, Congress provided $20 billion in fiscal aid to the states in the form of a temporary increase in the Medicaid match rate as well as general grants. This relief helped to avert deeper cuts in health care coverage and helped states address growing deficits. Unlike the federal government, virtually every state is required to balance its budget. Read more about federal fiscal aid to the states and why it should be part of an economic stimulus package.
We will keep you posted on further developments regarding a possible post-election session of Congress and a second economic stimulus package.
– Steve Francisco
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Action Opportunity, Economy, Federal Budget | Tagged: Economy, federal aid to states, stimulus | 
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Posted by Nan Madden
October 16, 2008
In response to the economic crisis, Congress passed a $700 billion financial rescue plan aimed at buying the troubled assets of banks, stimulating the credit market and restoring confidence in the nation’s economy.
Regrettably, Senate leaders also attached a controversial tax extenders package to the financial rescue bill. Tax extenders are provisions that are generally set to expire each year unless they are renewed by Congress. The debate on tax extenders was already underway. By adding these provisions to the financial rescue plan, the Senate avoided a confrontation with the House about whether the tax extenders should follow PAYGO rules and be offset with either another source of revenue or a spending cut. The House’s version of the tax extenders bill did follow PAYGO.
The tax extenders attached to the financial rescue plan are not offset, so they will further increase the federal budget deficit. Among the items included in the tax extenders package was the one-year “patch” for the Alternative Minimum Tax (AMT) and an energy tax plan.
The financial rescue package also became the home for a one-year improvement in the Child Tax Credit, a credit of up to $1,000 to help families with some of the costs of raising a child. Under this provision, an additional 34,848 Minnesota children will qualify for the Child Tax Credit, and another 120,715 Minnesota children are expected to qualify for a larger credit.
Under current law, the Child Tax Credit is not properly indexed for inflation, and Congressional action is needed to ensure that low-income families do not become ineligible for the credit as their earnings are eroded by inflation. This improvement in the Child Tax Credit was achieved by lowering the earnings threshold for low-income families to qualify for the credit from $12,050 to $8,500 for this year.
Hopefully, this temporary provision will be extended beyond 2008 when the new Congress convenes next year. To learn more about the importance of the Child Tax Credit, read the Center on Budget and Policy Priorities issue brief.
-Steve Francisco
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Federal Budget, Taxes | Tagged: AMT, child tax credit, paygo | 
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Posted by Nan Madden
October 16, 2008
New numbers from the Minnesota Department of Employment and Economic Development: Minnesota’s seasonally adjusted unemployment rate edged down in September to 5.9%. That’s slightly below the national rate of 6.1%. We’re still in the negative territory in terms of job growth: Minnesota has lost 18,800 jobs since last September.
On a separate but related note, a recent analysis from the Jobs Now Coalition dug deeper into the Twin Cities job market and found the number of job seekers is up 92% since 2000, but job openings are down 68%. They also found that the median wage for metro area job openings is not enough for a family of four with two workers to meet their basic needs.
-Katherine Blauvelt
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Economy | 
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Posted by Katherine Blauvelt
October 14, 2008
A webcast of the state’s press conference (just 30 minutes long) on the October Economic Update is now available for viewing on the House website. Check it out. You’ll get a pretty good sense of how Department of Finance officials and state economist Tom Stinson view the status of our economy, budget and the bond market.
It’s worth noting that everyone speaking at the press conference underscored the positive news that revenue for FY 2008-09 has been better than expected. At the same time, it’s understood that we will have a budget deficit for the next budget biennium, FY 2010-11.
Dr. Stinson pointed out a major “X factor” - the recent actions by the Federal Reserve and Treasury to unfreeze the credit freeze. We haven’t seen the effects of this yet, and how successful they are, or are not, will greatly impact how bad the economy gets.
Next up: September unemployment and job numbers in Minnesota will be released this Thursday, October 16th.
-Katherine Blauvelt
1 Comment | Economy | Permalink
Posted by Katherine Blauvelt
October 11, 2008
Hot off the presses (or web site, in this case), as of 2 p.m. today, the state’s October 2008 economic update is out!
The good news: Fiscal Year 2009 revenues are still holding slightly above what was predicted - up over $100 million. Income tax collections were better than expected, though sales tax receipts were worse than expected.
The bad news: For the next budget biennium of FY 2010-11, our economic outlook continues to worsen. Here’s a phrase you don’t want to see in your state’s economic update: “Unless conditions in financial markets change dramatically for the better, however, this recession will be the most severe faced by U.S. residents in the past 25 years.” [emphasis added] Remember back just seven months ago, in February when we got our last economic forecast? Then, the forecast predicted real GDP would grow 2.2% in 2009. Now the same forecasters are estimating GDP growth at 0.2%. That’s a major downward revision, which may very well result in less revenues (and a larger budget deficit).
Again, this is a quarterly economic update, just four pages long. Hang on until December 4th, when November forecast is scheduled to be released. That’s when we’ll learn more about how big the deficit for the next budget biennium could be.
This news today is sure to be of interest to Minnesotans. The economy and jobs are the #1 worry for two-thirds of Minnesotans, according to a new poll reported by MPR.
-Katherine Blauvelt
No Comments » | Budget Process, Economy | Permalink
Posted by Katherine Blauvelt
October 1, 2008
The Center on Budget and Policy Priorities has recently issued an analysis of a measure before voters in North Dakota this fall called Measure 2. Despite the bland name, Measure 2 is a dramatic proposal: it would cut the personal income tax by 50% and cut the corporate income tax by 15%, with an estimated two-year cost of $420 million.
North Dakota is in a fiscal situation very different from ours. The state is projecting a surplus, in part because the North Dakota economy is benefiting from high oil prices and high crop prices.
Remember the late 1990s when Minnesota was enjoying surpluses? I do, and I encourage North Dakotans to learn from some things that Minnesota did right, and some things that have come back to haunt us.
First the good. When states have large surpluses, it may make sense to use some of the surplus to reduce taxes - and why not learn from Minnesota’s experience? Minnesota issued several sales tax rebates, and policymakers found ways to include as many Minnesotans as possible, recognizing that all Minnesotans pay taxes.
Now the bad. During that boom period, Minnesota made permanent tax cuts assuming that the good times would last. Those permanent tax cuts made the state revenue shortfalls that followed more severe than they otherwise would have been, resulting in painful spending cuts and our ongoing challenges in funding state services.
I urge our North Dakota neighbors to learn from our experience. If you want to use some of your surpluses to cut taxes, make those tax cuts as broad-based and fair as possible. But don’t make permanent tax cuts as if the good times will last forever. In contrast, Measure 2 is poorly targeted: it cuts North Dakota’s already low income taxes (they are the lowest among the 41 states that have personal income taxes) and provides no tax cut to the approximately 30% of North Dakotans who currently pay no income tax. If Measure 2 passes, it would make it nearly impossible for the state to make changes to the state’s sales and property taxes, which have a greater impact on most North Dakotans than the income tax does.
The Center on Budget and Policy Priorities adds this recommendation: use a portion of this surplus to make investments that will give North Dakota a stronger economy in the long run. High-quality schools, strong universities, improved infrastructure - these are the investments that will help North Dakota thrive after the current oil boom goes bust.
- Nan Madden
1 Comment | Budget Process, Taxes | Permalink
Posted by Nan Madden
September 29, 2008
As Christina mentioned on the blog last week, we testified at the Governor’s 21st Century Tax Reform Commission.
The Commission members will soon be developing their recommendations on “how Minnesota can improve and modernize the state’s tax code for businesses to encourage economic growth in a fast-changing, highly competitive and global economy.” This report will be released on December 1.
If we think about the state’s revenue system as a puzzle, the Commission to date has been taking one piece of that puzzle - business taxes - and examining it closely. We urged the Commission to now put that piece back into place and understand its role in a larger context.
I made the case that the public sector is a partner with individual Minnesotans, the for-profit sector and the nonprofit sector in creating a society with a high quality of life in which all people have the opportunity to succeed. The business community and our economy benefits from public investments that include:
- our physical infrastructure
- the human capital of our residents
- protecting the safety and well-being of both people and property, and enforcing our laws
- the way we care for each other and ensure that all people can live in dignity, and
- cultural and environmental amenities.
All these make Minnesota a great place to live, raise a family and do business.
However, recent tax and budget trends threaten our economic future. I urged the Commission to ensure that their final recommendations have two characteristics:
- That it at least be revenue-neutral; that is, it does not cut total tax revenues. Reducing revenues simply does not make sense when the state is facing a deficit of $2 billion in the next budget cycle, including the impact of inflation.
- It should pay attention to tax fairness, and not make the tax system more regressive. The state’s tax system has already become more regressive since 2002, and the Commission’s recommendations should not make that worse.
A set of recommendations that have these characteristics will better fit into our current fiscal environment.
- Nan Madden
No Comments » | Taxes | Tagged: business taxes, tax reform commission | Permalink
Posted by Nan Madden
September 25, 2008
Just a quick addendum to my post the other day on unemployment: Check out the Economic Policy Institute’s interactive map of the August unemployment rate in each state, as well as job gains and losses since December 2007 (the point at which many economists say the economic downturn began).
-Katherine Blauvelt
No Comments » | Economy | Tagged: unemployment | Permalink
Posted by Katherine Blauvelt
September 24, 2008
Last Friday, Nan and I had the opportunity to testify before Governor Pawlenty’s 21st Century Tax Reform Commission (along with Dane Smith from Growth & Justice). I think the three of us brought a fresh perspective to the commission.
My comments focused on the bigger picture – what are businesses taxes paying for? Well, to make Minnesota a good place to do business now and in the future. And that requires a sound infrastructure and a trained workforce.
Education – at all levels – is one of the most important keys to our success. The composition of our workforce is changing quickly. To stay economically competitive in the future, we need everyone to be well-educated (and diversely educated). But if we keep facing state budget deficits – we will continue to erode funding for the services that reduce disparities, stabilize families and improve the quality of our workforce.
An important piece of our state budget is the corporate income tax. To give some perspective of the role it plays in our budget – the state expects to collect $969 million through the corporate income tax in FY 2009. Compare that amount to last session’s budget deficit – $935 million for FY 2009. Corporate taxes are a slice of the pie we need to keep our budget whole.
Some claim that high taxes drive away businesses. I have two responses.
First, the evidence is everywhere that we are entering a new economy. In the future, perhaps the best way to make our state attractive to businesses is to first make our state attractive to the workers they will need. Having a large, well-educated supply of labor would be a crucial part of enticing business to come or stay in Minnesota. An “if you train them, they will come” philosophy.
Second, we should be strategic about the kind of businesses we want to attract. Any reform package will have winners and losers. If we are reforming our businesses taxes, I’d recommend attracting the kind of high-quality businesses we have today – which require strong public investments in our infrastructure and human capital.
As the commission puts together its final report in the next two months, I hope they take a step back and articulate how their recommendations fit into a larger vision for the state. A vision that takes advantage of the changes in the world economy, instead of allowing us to be overwhelmed by them. Perhaps we can see taxes as something constructive, instead of simply an obstacle.
-Christina Wessel
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Posted by Christina Wessel
September 23, 2008
Late last week Minnesota’s job numbers for August came out - and they were pretty bad:
- August’s unemployment rate in Minnesota rose to 6.2% - slightly above the national average of 6.1%.
- There are nearly three times as many unemployed workers in Minnesota as there are job vacancies. This is the worst it has been for job seekers during the history of the job vacancy series - which dates back to fourth quarter 2000.
On top of these unsettling statistics comes a new report from Families USA which tells us that the annual cost of health insurance premiums provided through the workplace in Minnesota rose a whopping 74% from 2000 to 2007 - from $6,957 to $12,090 a year for family coverage. You can safely bet that the growth in the cost of health care coverage outpaced household income growth.
-Katherine Blauvelt
No Comments » | Economy | Tagged: health insurance, unemployment | Permalink
Posted by Katherine Blauvelt
