PoliGraph: GOP ties surplus to tax cuts

/ 12 March 2015 / Shawna
Catharine Richert, MPR News: Capitol View, March 12, 2015
poligraph-misleadingHere’s what the Minnesota Republican Party wants to do with the state’s nearly $1.9 billion surplus: Give it all back to Minnesotans. The party hasn’t detailed how it proposes to do that. But during a press conference to launch the party’s “Give it all back” ad campaign, party chair Keith Downey said that Democrats have overtaxed Minnesotans. “Democrats raised taxes $2 billion, it creates a surplus of nearly $2 billion in this budget, and a $3 billion surplus in the following biennium,” he said. It’s true that the projected surplus in the next biennium is just about equal to the amount that taxes went up when Democrats controlled the Legislature, but Downey is oversimplifying the state’s budget situation. The Evidence During the 2013 session, Democrats did raise taxes roughly $2 billion. That included an income tax increase on Minnesota’s top earners, as well as a $1.60 per pack sales tax on cigarettes (which will increase over time) – two taxes that impact only a segment of the population. On top of that, Democrats approved an array of business-related sales taxes. That new money helped close the state’s $627 million budget gap, as well as pay for new education spending and property tax cuts. In 2014, the state ended up with a $1.2 billion surplus, which was the result of a stronger economy overall. The same year, Democrats rolled back about $232 million worth of some of the new sales taxes they’d just passed the year before. The most recent budget forecast out last month shows that the state is now on track to have a nearly $1.9 billion surplus in the coming biennium and a $3.2 billion surplus in fiscal years 2018 and 2019. That windfall is largely due to an improved economy nationally and locally, and lower than expected state spending. More people are working at higher wages, which means more income tax revenue for the state. People are spending more money, too, which has been bolstered by lower gas prices. All that translates to more sales tax revenue, which is also contributing to the surplus. For his part, Downey says there’s an easy way to prove his statement: if the state eliminated all the tax increases passed by Democrats in 2013 tomorrow, it would spell trouble for the state’s coffers. “I guarantee you if you repealed those taxes, you would eliminate roughly $2 billion from the revenue forecast,” Downey said. The Verdict For the most part, Downey gets his numbers right. But his statement makes it seem that tax increases passed two years ago are the only reason the state has a budget surplus now. Certainly, those tax increases did erase the state’s earlier budget deficit and pay for new spending on things including all-day kindergarten and higher education tuition freezes. The budget surplus that’s projected now is actually the result of a much more complicated array of factors playing out nationally and locally, including job growth, wage growth, lower gas prices and lower than projected state spending on schools. Downey is clearly presenting a picture of the state’s financial situation for political purposes to build support for a tax cut.  PoliGraph has no issue with that, but for giving an overly simplistic explanation for the projected surplus, Downey’s statement earns a misleading.