Governor Mark Daytons LECTURE + Q&A at the University of Minnesotas Humphrey Institute

September 12, 2012

*Below are Governor Daytons transcribed comments on taxes and the State of Minnesota*

LECTURE:

(06:30) The State of MN was in pretty solid financial condition back in the end of the 1990s. The 1999 and 2000 legislatures cut taxes in our state, personal income taxes primarily. It cost the state an estimated $8 billion in revenues from fiscal year 2000 to 2012.

(07:20) Because the state cant run operating deficits like the federal government, you end up with one-time gimmicks, like the school-shift, where we owe $2.4 billion to out public schools, for payments that were delayed on paper, in order to balance the budget.

(07:35) We borrowed $750 million dollars from the future tobacco revenues.

(07:45) Before I arrived they developed an accounting procedure in order to pay the Department of Human Services vendors in June, and recognize in July, so that they wouldnt have to recognize it during that biennium.

(08.05): They took money from every designated fund that they could get their hands on, and even then, we were faced with a serious deficit and draconian cuts.

(08:25): That still left us facing a structural deficit of over $1 billion for the next biennium.

(09:10): In my view, this unwillingness to pay taxes..is going to be the death of our country if its not corrected.

(13:30): (Commissioner of Revenue, Myron Frans) has this 3-legged stool, 2 of them, that he

shows how our tax-system was balanced a decade ago in revenues, between the sales tax, the income tax, and the property tax.

(13:40): And now the property tax has grown significantly, and the other two have diminished.

(13:48): As a result of which, in part, the regressivity of our taxes has increased in Minnesota as well.

(13:55): The property tax really is the most unfair tax, because youre hitting people between the eyes for something they dont really have any control over, its fluctuations.

(14:01): Seniors, homeowners, renters, farmers, are all the most susceptible to that, and often without the income reserves to cover those additional costs.

(14:22): (Recognizing that) tax reform is always supported, almost always, certainly by the editorial boards, in the abstract, but people are going to get upset when we get in to the details because inevitably when you keep the same amount of revenue, theres going to be winners and losers, relatively speaking.

(14:39): Were going to wait until after the election for that, the 2014 election, actually. Theres your news. Well have something in December.

(14:52): (Well have) a discussion about what kind of tax code we need to be fair, to be balanced, and also to set the stage for future economic growth. How do we reward innovation, how to we reward success in a good way, and not subsidize areas that are not going to be additive to our economic growth.

(20:05): Public investments do create jobs, and they create a better environment for businesses to operate.

(21:20): We are not willing to pay for what we eat.

(23:55): Because they couldnt pay for Obamacare with an income tax on millionaires, they had to shift the burden to medical technology companies, with a tax.

(24:02): We want to encourage.those companies, many of which are based here in Minnesota, to be as successful as possible, as cost competitive as possible, all over the world.

Q&A with Larry Jacobs:

(01:30): If you take the total state revenues on a per capita basis, its been declining steadily for the last decade.

(01:37): The cost of government, which is sort of the combined state and local self-gained taxes, per capita, has dropped from 17.2% to 15.4% over those 10 years.

(01:57): Were second from the bottom, in terms of states with the greatest decline, in percentage decline in resources over that decade.

(02:35): (Property taxes) have increased 75% in Minnesota in the last decade.

(03:24): Everybody likes cutting taxes; even I like cutting taxes, because its very popular. But the question is, whats the other side? What are the consequences? And when were putting ourselves $2.4 billion in debt on the school-shift, and another $750 million on the tobacco taxes, thats right there, over $3 billion dollars.

(04:08): We need to face up to the cutting of cutting $8 billion out of our revenues over the previous 10 years, and not willing to make the savage cuts to balance our books then.

(04:35): Im still for increasing the taxation of the top 2% (of income earners).

(05:08): (Tax) reform is in the eyes of the beholder.

(05:10): We want a fair, more balanced, and more conducive (tax model) to economic growth.

(05:21): (When you say that) the effective tax rate on businesses is lower than the 9.8% sticker rate, but especially for the large companies that are international, small businesses that you know, are located in Marshall or Montevideo, that are really doing all of their business locally, do pay very close to that rate, so weve got to kind do some kind of form of regressivity in the corporate tax. The big ones and the most profitable will pay 2% to 3%.

(07:01): When we proposed the last Session, closing some of the foreign operations, well Id call them loop-holes, for some of the largest companies in Minnesota, we heard about it very intensely. And of course the Legislators heard about it, and they werent for any tax increase, of any kind anyway, so they wouldnt go along. Well encounter that kind of resistance.

(07:43): Thats another reason to put it off until after the election (speaking on his Administrations new tax proposal(s)), once you put it out there, and thats fine, everybody will be looking at it from their own standpoint, everybody will be shooting at it that way. Its like the Legislature with the Per Pupil Aid formula, or Re-districting. Everybody has a computer, everybody does a run, everybody sees, am I going to do relatively better, or relatively worse?.

(08:01): Thats what the Legislative Session is for, to thrash it all out. We wont have the perfect mix, or the perfect answer. And if we cant get some of the things, as you say, like raising the rate on the top 2% (of income earners), we might just have to say, OK, this group isnt capable of doing it.

(20:14): (speaking on the leadership in Minnesotas business community) Are they going to be happy with a tax policy that doesnt take us down to the level of Alabama or Mississippi? Youll have to ask them. My personal experience is that the top executives are far more concerned with the personal income tax rate than they are with corporate tax rate. They are sensitive to that, and nobody wants to pay more taxes.

(20:34): A lot of enlightened Minnesotans who would be affected by the 2% at the top, are very willing to pay more taxes, and understand the interrelatedness. Thats not by any means universal in some of the top executive positions, thats their litmus test for everything else. I respectfully disagree with that attitude, but its certainly prevalent.

(21:43): (speaking on the quality/equity gap in funding public education in MN) Governor Ventura increased the amount (of funding) that the state was supposed to take responsibility for in 2000, I believe it was. But, having cut taxes in 1999 and 2000, we didnt have the wherewithal to carry that out. Again, more of that has been shifted to the property tax.

(22:01): So the poorer districts who need the referendum are much less likely to get them approved by their voters. And people are tax-averse anyways, so you say OK heres your 1 chance every 2 years to express your views on taxes generally, and you can vote whether to raise your taxes or not. And it puts the schools, which should have the most secure source of funding, in the most precarious position. Thats one of the reasons that I want to increase the state funding for K-12 education, so that we can have greater equity.

(25.47): On taxes, I stand by my willingness to increase taxes on the wealthiest 2%. If we had done that in this (last) biennium, that would have been $1.8 billion of additional revenue. Just a 2% increase on the wealthiest 2%; $1.8 billion. And that would have meant that we wouldnt have had to borrow from the schools, we wouldnt have had to borrow from the tobacco, and we would have had relatively $300 million more that we could have put (toward) better-quality education, or reducing the cuts at the University and MNSCU. It makes a huge difference, polls show 2/3s or more of the people of Minnesota support that position.

(26.25): I have no doubt in my mind that if there were an election a week after the 2011 Session

ended, or after the 2012 Session ended, that the DFL would have won overwhelmingly.

(40:25): (In reference to the Tea Party Movement) I dont get this attitude that its my way, or no way.