William Johnson and Lloyd Brandt discuss Minnesota taxes

Programs | Midday | Topics | Politics | Business | Types | Interviews | Grants | Legacy Amendment Digitization (2018-2019) | Social Issue |
Listen: 26262.wav
0:00

MPR’s Dan Olson interviews William Johnson, political science professor at Bethel College; and Lloyd Brandt, public affairs office of the First Banks System. Johnson and Brandt discuss the state-local fiscal relationship and tax limitation proposals, based on a Citizens League report on the fiscal and tax situation in Minnesota.

Read the Text Transcription of the Audio.

(00:00:00) There is a fever in the land and you don't need a thermometer to detect the temperature rising. It is tax cut fever and some people believe it started spreading when Californians passed Proposition 13, which mandates that California officials limit their spending the co-author of Proposition 13 Howard Jarvis and a number of others wasted no time when the votes were totaled in the Golden State, they detected anger among taxpayers and they have moved to offer an answer the answer. They say is that taxes can be cut When government spending is limited that theme has been picked up by politicians of various philosophies so that we can now hear public office holders and Seekers from the left and the right all saying that something needs to be done this past weekend about 300 businessmen politicians and economists have approved a proposal that would cut federal taxes by limiting government spending at group met for about 3 days in Nashville, Tennessee over the weekend. They took the name the national tax limitation committee. They want to submit a proposed constitutional amendment to Congress. By February the last names of Republican US representatives Geoff Jack Kemp and William Roth have become a household phrase. The Kemp Roth proposal was to cut federal income taxes again by a third over a period of three years specific proposal was rejected by the democrat-controlled Congress, but the relatively warm public reception given the camp Roth idea was not lost on Congress. They passed a tax cut involving less money, but with some of the same Provisions, but the fever has not been broken. Minnesota is an example. We know that are relatively high quality of life costs money to support not all minnesotans are unwilling to pay the cost. But when we realize that our salary increases pushes a push us into higher income tax brackets at the same time that inflation is reducing our real income our temperature rises to so how should we change the way taxes are levied and spent in Minnesota. Well, that was the question considered by the citizens League a non-profit Twin Cities based group of citizens in the summer of 1977 before Position 13 had been passed in California. The Citizens League was to study Minneapolis. St. Paul finances the co-chairman of the final report on state local physical relationships were Lloyd brand and William Johnson brand has a public affairs officer for the first bank system and Johnson is a political science professor at Bethel College in Arden Hills, and they've joined me today in the studio for a conversation about the Citizens League study gentleman, one of the first things that the Citizens League committee report concludes is that we do not need a Proposition 13 style approach to control State revenues and expenditures. Mr. Brandt. I'm curious to ask you why not. (00:02:38) Well, I think (00:02:40) our concern related to the way in which people in California sought to get a handle on public expenditures. We perhaps would not agree with their perception that public expenditures are rising too rapidly. If you look at the comparative rise in cost of state and local government as compared to other sectors it is going up at a more rapid rate than most other expenditures. And if you project that out very far you would have to use all the national resources for the public sector which obviously none of us want our Coral was with the way in which Proposition 13 approach that problem and that is what we call the meat ax approach or you simply say you're going to cut expenditures so many percentage points irrespective of what services are affected or where those cuts really ought to be made. We think that's the wrong way to go about Rolling back public expenditures Professor Johnson. Maybe you can elaborate on why you referred to this as a meat ax approach when you talk about Proposition 13 (00:03:48) For one thing it it removes much of the discretion that local officials have had in determining their own levels of Taxation and expenditure. I think many people are just coming to realize now how much of the responsibility for these decisions has been shifted to the state government in California more than we think is wise. So that that's one of the problems another is that anytime you men date a tax cut? And don't say anything about the expenditure side. You leave a lot of potential for chaos there. (00:04:27) Do you think gentlemen that it was clear to California voters what they were getting when they pass Proposition 13 Professor Johnson, (00:04:34) they certainly knew that their own residential property tax would be cut what many of them I think we're not aware of was that a lot of tax cuts would be enjoyed by business and industrial property including that owned by non Californians. So that much of the money would go out of state perhaps the they did not realize that they would have to pay more in federal income taxes as a result. I'm sure that there are many implications which were either not explained or not fully understood by the average voter. (00:05:06) Is that your perception to? Mr. Brent. Yes, I think that's right. I think California is perceived that the state was accumulating large surpluses. Well, they were paying very high property taxes, too. Local governments and something just basically seem wrong time about that. Well Proposition 13, then may not be right for Minnesota, but it doesn't seem to change one fact and that is that it seems to me people just want to pay less taxes yet. The Citizens League report notes that it is not always easy for state and local officials in Minnesota to respond to the interests of people very curious about that statement Professor Johnson. What did the committee have in mind when it made that statement (00:05:45) quite often people will demand lower taxes and yet will expect that the services they receive from government be maintained at the level or probably improved their had just noticed by the way. There was a poll reported in the Tribune yesterday the effect that people generally believe that about 1/4 of all local government money is wasted and about a third of all state government money is wasted There's a widespread assumption which I think is quite false that you can cut taxes significantly without reducing service levels. That is a real myth. So a public official having to cope with this response on the part of constituents. Gets the mandate to cut but you squeezed because people don't want their services cut that's the beginning of the (00:06:40) situation and what are some of the other complexities. Mr. Brandt. Well, I think the claim are the concern that some people Express that somehow people are less compassion today than they used to be that they don't care any longer about services to those who are needy. I just have to reject that. I don't believe that's true. I think as bill has indicated. There is a perception that there is a great deal of waste that the money is not being used prudently and I don't know as we can really say well that perception how accurate are how false it is, but I think it that perception is there and oftentimes it's not dealing with the reality. It's dealing with the people believe the reality to be and I suppose inflation plays a big part in that in a moment. We'll be talking about that problem. Of inflation Professor (00:07:34) Johnson. Another difficulty is that when local officials are actually sitting down to make their budgetary decisions whether it's city council's is school boards or County boards. They are faced with some certain practical Revenue limitations. They're faced with the necessity of preparing a budget but they get very little input from the average citizen as to how to distribute those limited resources. They may call a hearing invite people to come and respond and if there are more people in attendance at there than there are members of the council they are often delighted people just don't express themselves in such issues. This makes it hard to (00:08:18) make decisions and yet the the term the average citizen is very interesting to me because while we may have an average citizen with one set of interests, then we have the average citizen who may also be a union member a Public Employee a professional a member of Professional Organization so that they're an average citizen and then on the other hand, they're a member of some interest group and that has to be balanced to and I presume that is a great difficulty that state officials and local officials must face. And I think this is the way the system was intended to work really there was a recognition that there would be various interest groups within the country and the genius of the system. It seems to me was to allow the various interest to be expressed and the public officials then who were elected in the countable to weigh the various interest in the various options and to legislate on that basis and question of that's a difficult job because those interests are quite Divergent at times now, I suppose I have heard about as many complaints about Minnesota state income taxes as I have heard about any category of Taxation, perhaps how would you describe how income taxes fit into the state revenue system? Professor Johnson (00:09:34) Minnesota has one of the most progressive income taxes in the country that is the rate of marginal tax rate of tax, which you pay Rises rather steeply as income goes up many states have only a mildly progressive income tax some states simply impose a flat rate. The percentage is the same no matter what the income level is. Now with a progressive income tax the revenue derived from that tax goes up rather sharply as income goes up. Now what we have seen in the last few years is that income has gone up solely due to inflation purchasing power may not have gone up at all yet. One is being constantly pushed into higher income tax brackets. Now this has provided a great deal of additional money for the state. It is permitted rather significant increases in state spending. So it has been the the engine you might say, which is pulled along the train of expenditure. Now, the state is certainly spending more money on itself, but quite a bit of this additional money has also gone to do cities counties and school districts which has in turn not only provided more money for them. But also enable them to keep their real estate taxes from rising at more than a fairly mild rate compared with other states. (00:11:02) Well, is it your impression that it is clearly understood by most minnesotans how this state revenue system works that a lot of the revenue raised by the state then is sent back to the localities. I don't think it is generally understood. I think that's a problem because Our system is so complex because Minnesota really has a state revenue system some of the dollars raised locally for local services, but in large measure those local Services supported by money collected at the state level and sent back to the local community by some kind of formula. And as I think back over the committee discussions, it seems to me that there was very little opinion in the committee that the income tax was a bad way to raise revenue that it generally provides a pretty fair way to raise money for public services. There was however a real concern that when you raise these dollars on the state level. And particularly when you have inflation and a progressive income tax where you move people into higher brackets without they're really being aware of it that you lose a good deal of accountability. Let me just give you an example of I met years ago when the school's raise their money through local property taxes a school this school administrator might go to the board and say we want to spend this much more money. It will take you 5 million increase in property taxes. Will the accountability was very clearly right there. The board had to say. Yes, we'll raise it five mils or we won't thinking that they might not get reelected if they did and they would maybe try to squeeze it back to two males or whatever else there what there was accountability there. When the money is coming back to the school district by formula from the state the administrator essentially goes to his board and says we would like to spend more money to do that. We need more money from the state. We need to change the formula and this way. May we do that. Well, most any school board member was the yes by all means go ahead and if the state has a fairly large pool of money at hand because of the impact of inflation on the income tax, it's fairly easy to say yes to that request to change the formula. So you have kind of in the process lost that sense of accountability that used to exist. All right, so to return accountability, do we return more control of our state revenue system to the local level Professor Johnson (00:13:42) we can move back in that direction a little bit. We realized that a number of important advantages have been gained particularly in the state's role in funding education. Over the last 10 years there has been significant progress and coming close to equalizing the resources available for education in the various school districts around the state previously. There was quite a bit quite a difference going to wide difference between one district and another and The Rustic it's been an education the richest and the poorest between the richest and the poorest districts and since education is a state responsibility and we've had some Court decisions which have essentially mandated something pretty close to equal spending on schools. We feel that this is an important point to be maintained so that the discretion to be enjoyed by local school boards would not be that a maintaining a lower standard of education, but rather for giving them some marginal choice. Between factors that perhaps don't relate to overall quality but rather discretionary (00:14:57) matters, so with the return of local control to local officials be one more of words than of substance. Is that what you're proposing? Mr. Brand? No, I don't think it is. I think we would like to see more local control. Without losing the one advantage that goes along with raising money at the state level and sending it back based on need and that is that advantage of leveling out the burden of Taxation for a minimum level of services. And I think as you look at what Minnesota has done over the past 10 years and you ask what has tax policy really been It primarily is made up of two components one. There has been a desire to hold down the residential property tax. And of course the local property tax has been the Principal source of revenue for the local official. So whenever you've tried to hold that down you almost automatically removed his discretion someone the the other objective has been to not only hold on property taxes residential property taxes, but to level out the burden for services and the income tax inevitably raise at the state level figures in that. Well, if excuse me, well if we return more control to local officials what's to assure us that we're going to have the same quantity or quality of services that we have enjoyed in the past Professor Johnson, (00:16:33) we made several recommendations on providing more information to Citizens so that they can perhaps get a better grasp on what is happening and can respond in general. You know, we've established in Minnesota a fairly high level. The Public Services both at the state and local levels. I don't think we're in serious danger of seeing these sharply cut back. I think that there may be some some changes in preferences for the mix of services. But in general we feel that the present levels are reasonably (00:17:13) secure. Well two questions based on that. All right, let's say that more information is made available to the local citizenry about what is spent how it is spent what is to guarantee that there will be more participation just because there's more information available. Especially if voter participation is any indication of willingness of citizens to participate I think along with that suggestion. We have to understand that currently property taxes are limited by the state increases in property taxes. And our report suggests that there ought to be a loosening up of that and that they're out not to be a flat ceiling on how many dollars can be raised in property taxes at the local level. And when you suggest that then you want to be sure that local people have control that they understand what's happening. And so you try to make more information available to them to them to make it very clear to them what is being done or for being proposed by local elected officials. So they really can vote intelligently on the issues. What kind of information are we talking about? Mr. Brent? In some cases it is required that the local governments before increasing taxes publish information in very clear form that gives the voter and understanding of what kinds of increases are being proposed both in terms of additional employees additional expenditures what the trend lines are in terms of what we spent for this particular service over the last three years how rapidly its increasing that kind of information that would give them an opportunity to evaluate really where government is going. Well, let's stick with the income tax issue for just one more question would taxes in Minnesota. Be more even more evenly distributed if we used other devices a bit more the sales tax, for example, should we make more use of the sales tax? Mr. Johnson? (00:19:19) The committee did not feel that the sales tax rates did not did not did not feel that the sales tax rate needs to be increased the we recognize that it is not particularly progressive tax. We do exclude food clothing and medicine from that yet yet. It was felt that it was about at the highest Optimum (00:19:45) level and yet people who could pay would be affected by the sales tax. This is true. This is true, (00:19:51) and we did not give a lot of time to discussing that but there were General satisfaction with it in general. We were satisfied with the present distribution. Of taxes between the three major forms income sales and property tax and we felt that this proportion probably should be held about but it is (00:20:15) now reaction to that. Mr. Brand. Yes, I think different kinds of taxes get at different kinds of ability to pay the income tax is a tax on income flow. The property tax is really a tax on wealth what you have in land or residential property or what have you the sales tax is is a levy on on your spending pattern you're spending ability and I'm going to sort of generally considered a high tax state. It is not necessarily A high-tech state for everybody. If you look at rural areas, for example, agricultural areas. Our tax policies regarding agricultural land is fairly. Tens are very limited taxation income taxes are not the major factor for in that segment of these economy. And if you're living in a rural community, your property taxes are probably not as high as you're on the metropolitan area. So different taxes impact very differently on different kinds of people and part of the argument for you for a fairly even spread between property sales and income is that there's some Equity involved in getting at the income stream the basic well that a person has and his spending pattern another issue that has to do with that issue of devices. Do we need more devices for raising revenues? Perhaps what about the issue of charging a service fee or a user fee to tax-exempt organizations in Minnesota that was brought up in the report. I'm curious about your perspective. General reaction to that Professor Johnson (00:22:08) There were several things that lay behind that suggestion. It was brought up in the committee that many cities have within their borders large amounts of tax exempt (00:22:20) property Beyond Minneapolis. It's about what 25% higher maybe (00:22:25) it's at least that when you look at the property owned by government and by nonprofit institutions and the property owned by railroads, which is substantial and real Road earnings are subject to a gross earnings tax, but they do not pay local property taxes. So it amounts are quite a bit now a city that has quite a bit of such property within its borders has in many cases extra service demands. It must provide police protection to a church or whatever and not really get anything back now. We're not proposing. To bring certainly the nonprofit property under the property tax burden. Nobody was in favor of that. We wanted the state to address that problem though, because from the local government perspective those costs are still there. And we talked about this mainly in terms of things that ought to be looked at and considered there was not a clear committee consensus on these things. We recognize the problem. We didn't have any single solution and one of those that came out was a feeling that perhaps these nonprofit institutions as well as property owned by other governments could pay some kind of service fee because they are indeed getting the police and fire protection if those costs could be apportioned out fairly. We realize that some private Russians nonprofit institutions are voluntarily paying a contribution in lieu of taxes a varying amounts usually quite small and we thought that this is something that could be explored (00:24:14) further anything to add to that. Mr. Brandt only that I think anytime you are looking for tax revenues and you look at certain buildings and properties that are paying taxes. They always seemed like fair game and yet we need to understand that this whole nonprofit sector is a very significant part of our lifestyle and in our particular corporation. I'm associated with I have some thing to do with the distribution of charitable Grant funds and we deal with a lot of these organizations that are providing some just extremely fine services to the community and yet it's very difficult to generate enough income and through the services. They provide can meet their budgets and their budgets are subsidized through corporate grants and the your grants and if you simply Lay, an additional tax load or a new tax load and institutions like that. You may be doing something to your lifestyle. You really don't want to do one of the recommendations of the Citizens League report says adjust state income tax brackets and credits for that individuals will pay taxes at higher rates only when their real incomes increase or when the legislature makes a deliberate decision to increase tax rates real income is very interesting term to me who can measure real income. How will that determination be made? Mr. Brandt real income is Your income after the impact of inflation is taken out. And well measurements for that may not be perfect. There are pretty good measurements in terms of the impact of inflation and what has been happening. With the combination of a progressive income tax and inflation is that for every 1% of inflation you get something like I believe it's about 1.3 or a little more than it percentage points in state revenue raised to the income tax now, we're not suggesting that the income tax should not go up with inflation it ought to because government cost inflate like everything else but we don't think it should go up any more rapidly than inflation. The person who is if you have 10% inflation during a year and the person who gets a 10 percent increase in his income should not be moved into a higher tax bracket if he is he is he the tax has increased upon him without any increase in real income. We don't think that's appropriate. In this Citizens League report as I read it. I got the feeling that as we pointed out at the beginning of the discussion. You do not favor the meat ax approach as you call it of a Proposition 13 style tax cutting tax limiting expenditure limiting proposal. Whatever you want to call it instead. I get the impression you're talking about adjusting the Minnesota State Revenue system with as we've talked about turning more control over to local officials. You think Minnesota citizens are going to buy these recommendations does it you think it sounds strong enough to minnesotans who are paying taxes as I suspect that announce direct answer to your question as probably it's know that the public does not force will not perceive that these recommendations go far enough at least just looking at the last election and looking at what seems to be the public mood. I think it is generally for more rigid controls. However, if I can use a may be a poor illustration and in my family my wife manages a good part of the budget and I could take the approach while I'm going to give you 25% less now, you know, you'd only do that when Communications I really broken down completely between the two of the otherwise you'd sit down and say where do we cut and what can't we cut and I see that as kind of on that of an analogy of what where we are but with the relationship between the public and elected officials. They're just not communicating and not Community. I think they I think there is a feeling of frustration in the country that we've elected different people and we've elected different parties and nothing has changed that public expenditures have continued to escalate and that there's nothing left for us to do but just to you know to say 25% less or whatever else and logically that's not a good way to go if elected officials would perhaps be Turn down the message. That's the last alternative for the public but it certainly shouldn't be the first choice and we're saying Minnesota. We've built a pretty good system and we certainly aren't are not at the point where we ought to go to that (00:28:55) and more than that. I guess we're eight aiming at reopening some me some communication between citizens and public officials who want to see them talking again about specific decisions regarding taxes and spending above all this is what we'd like to see.

Funders

Digitization made possible by the State of Minnesota Legacy Amendment’s Arts and Cultural Heritage Fund, approved by voters in 2008.

This Story Appears in the Following Collections

Views and opinions expressed in the content do not represent the opinions of APMG. APMG is not responsible for objectionable content and language represented on the site. Please use the "Contact Us" button if you'd like to report a piece of content. Thank you.

Transcriptions provided are machine generated, and while APMG makes the best effort for accuracy, mistakes will happen. Please excuse these errors and use the "Contact Us" button if you'd like to report an error. Thank you.

< path d="M23.5-64c0 0.1 0 0.1 0 0.2 -0.1 0.1-0.1 0.1-0.2 0.1 -0.1 0.1-0.1 0.3-0.1 0.4 -0.2 0.1 0 0.2 0 0.3 0 0 0 0.1 0 0.2 0 0.1 0 0.3 0.1 0.4 0.1 0.2 0.3 0.4 0.4 0.5 0.2 0.1 0.4 0.6 0.6 0.6 0.2 0 0.4-0.1 0.5-0.1 0.2 0 0.4 0 0.6-0.1 0.2-0.1 0.1-0.3 0.3-0.5 0.1-0.1 0.3 0 0.4-0.1 0.2-0.1 0.3-0.3 0.4-0.5 0-0.1 0-0.1 0-0.2 0-0.1 0.1-0.2 0.1-0.3 0-0.1-0.1-0.1-0.1-0.2 0-0.1 0-0.2 0-0.3 0-0.2 0-0.4-0.1-0.5 -0.4-0.7-1.2-0.9-2-0.8 -0.2 0-0.3 0.1-0.4 0.2 -0.2 0.1-0.1 0.2-0.3 0.2 -0.1 0-0.2 0.1-0.2 0.2C23.5-64 23.5-64.1 23.5-64 23.5-64 23.5-64 23.5-64"/>