So Keith Downey and the Republican Party of Minnesota are running ads saying they want to give back all of the $1.9 billion state surplus to Minnesotans. Quiz time.
This idea is:
a) Something they actually believe.
b) A way to make Kurt Daubt and the House Caucus ideas seem reasonable.
c) A smart political move.
d) A fiscally dumb idea.
e) All of the above.
The answer is (e), all of the above. Why is that the correct answer? Examining the politics of the budget surplus and how the DFL are just about ready to get out-maneuvered politically by the Republicans on it tells one a lot about state politics and the fortunes of the two parties.
Let us begin first my declaring that rebating the surplus is actually something that Downey and most Republicans actually believe. Rebating the surplus is really a continuation of the party mantra for the last 35 years which has stressed tax cuts as a Republican solution for almost every problem confronted. Economy in a funk, cut taxes. Economy doing well, cut taxes. Need better roads and bridges? Cut taxes. Expensive housing? Cut taxes. It is a one size fits all answer but it has been a successful one for the GOP fortunes. Their base loves the idea of tax cuts and many actually do believe that it is the best way to help the economy. When GOP Keith Downey was a legislator he never met a tax cut he did not like, and no surprise that he along with many other Republican legislators believe that the best thing for the state of Minnesota is simply to rebate all of the money back.
Yet even if it is an idea that Downey does not actually believe, it is a terrific way to make Speaker Kurt Daubt and the Republican House caucus proposals look good. Their ideas various call for cutting taxes, spending more on education, and also using the money to repair roads, bridges, and highways. These are all great ideas that appeal both to their base who want tax cuts, but also to rural constituents who feel that too much spending is going to Twin Cities mass transportation. Spending on education is a good priority that appeals to swing voters, and it is also a way to help undermine some of the equalization formulae that try to rectify imbalances in tax bases across Minnesota school districts. The problem with their proposal of course is that $1.9 will not go very far toward paying for many of these projects. Additionally, so far the House has not been clear in that the big winners of their proposals, especially the tax cuts, will not be working or middle class Minnesotans.
But nonetheless, the call for rebating all of the surplus is politically brilliant. The public hears surplus and thinks the government has too much of my money, I should get some back. The idea of rebates sounds terrific–mailing checks to voters or giving them rebates at a time when Minnesotans are doing their taxes. It was a tactic used once by Governor Ventura and the legislature back in 1999-2000 and it was popular. Everyone loves Santa Claus; everyone loves people who give us gifts.
Tax cuts have been a staple message of Republicans for decades and there is no reason to think why it should not continue to be a successful message into the future. It is a great wedge issue against Democrats. How can they oppose giving the people their money back? If the DFL does not support it they are just the tax and spend liberals we know they are. They are the party of big government and extravagant state office buildings, refusing to help working Minnesotans out by sending them a few hundred dollars back.
But rebating is simply dumb on so many grounds. One again needs to point out that of the $1.9 billion the first billion does not exist. If all of the current programs funded by the state are continued at their same spending level into the next biennium it will cost the state another $1 billion to fund them because of inflation. In order to reap this first billion as a surplus one needs to cut one billion in spending first. Second, the surplus is only a surplus because of the tax increases. Cut the taxes and the surplus disappears. There is no structural surplus. Third, the other $900 million is hardly a surplus either. With Dayton having proposed a $40 billion biennium, that $900 M is barely 2%. If we think of the total real obligations that the State has for the next two years which includes both what Minnesota pays for along with the federal government, real spending obligations increase by tens of billions of more dollars. That $900 M is nothing. Assume any serous federal budget cuts or another shutdown and the state is still on the hook and it has no money as a cushion. Or assume that there are other natural disasters that occurs and a special appropriation is needed. Or simply assume a slowdown in the economy or even that the surplus forecast is off just a percent or so. Suddenly that $900 million is gone.
The margins for error are great here. Giving away this remaining $900 million is bad accounting. Generally accepted accounting practices declare that organizations should have contingency funds or accounts set aside. It should be a certain percentage of a budget. The exact size of the contingency depends on risk, but a 5% contingency of an entire budget is not out of line. Thus, smart budgeting suggests that saving this remaining $900 million would be good accounting.
On top of which, the last time the state gave away it surplus was back when Ventura was governor. The state of Minnesota went from an approximately $4.5 billion surplus in 1999 to a multi-billion dollar deficit in 2002. To this day Minnesota has yet to recover from the stupidly of this move along with the changes in budgetary law that have continued to create the fiscal problems that face the state.
Thus, the correct answer is all of the above. Those of you who gave this as an answer can go to the head of the class.