Saturday, July 28, 2007

Dane Smith and Charlie Quimby: The good life, as begotten by good government

In the propaganda of profligacy, tax money is always wasted. But statistics suggest that it generates wealth we can spend on ourselves.

The premise, of course, is that government is wasteful and profligate, while you are prudent and frugal.

Now comes a July 14 Star Tribune report with some fun facts from the Bureau of Labor Statistics (BLS). Twin Cities households ranked first among 24 metropolitan areas in household spending on home furnishings and entertainment, third in eating out, third in alcohol consumption, and sixth in personal-care items. One retailer in the article observed that upscale consumers are increasingly demanding not just premium vodka, but "super ultra premium vodka."

Let's just quickly review and compare how state and local governments have been squandering "your" money. Almost all public-sector spending goes for these frivolities: public schools and colleges, health care for the elderly and for poor families with children, roads and mass transit, libraries, environmental protection, parks, police and fire protection, courts and corrections. (Some might argue that government officials and the Legislature do provide entertainment, but this is basically a free sideshow, not a budget line item.)

Earlier this summer, we learned from another federal report that Minnesota had sunk to a modern-era low, 23rd among the states, in state and local government taxes as a percent of income, and to 31st in government expenditures as a percent of income. By these measures, our government is significantly smaller than in the mid-1990s, before some of the largest state income tax cuts in the nation were pushed through in 1999 and 2002. (Advocates of those cuts said they would spur economic growth.)

Next comes a troubling report in the July 18 Star Tribune: "Since 2004, Minnesota's growth in jobs, per-capita personal income and output of goods and services has risen at a lower pace than the national average."

High consumer spending on luxuries, proportionately less government spending and slower-than-average overall economic growth. Could there be a connection?

As pointed out in the July 14 story, our high rankings on nearly every consumer-spending category are explained in large part by the fact that our incomes were third-highest of the 24 metropolitan areas. But the dramatic growth in Minnesota's wealth and income over the past three decades actually occurred when taxes were higher than they are now and when "we" were spending more on "us." And our economy has stagnated since we cut government and taxes, giving "you" more money to spend on "you."

Deep down, Minnesotans know that the good life is not all fine wine and skin-care products. Sure enough, digging into the BLS data, we found that the Twin Cities also rank second in consumer spending on health care and cash donations and sixth in education. Throw in our seventh-place spending on reading, and our priorities as consumers start to align more closely with our public spending.

Let's acknowledge that government can waste money, spend inefficiently and make mistakes, just as individual consumers do. But Minnesota, widely admired as a relatively efficient, clean, good-government state, has spent your money pretty well, too.

A truly healthy state economy depends both on spending by individuals, making considered judgments about their families' needs, and on pooled investment that reflects our common wisdom, values and hopes for the future. Instead of viewing government spending as somehow inferior to or more frivolous than individual, consumer-driven decisions, we should insist that the money be invested as wisely and cost-effectively as possible.

If Minnesota's total investment in the public sector increased by just 1 percentage point as a share of personal income, state and local governments would have $2 billion more per year to improve schools and graduation rates, catch up on a long-neglected transportation system, and restore health care to the thousands who have lost it as a result of a gradual disinvestment in the public sector.

Restoring tax fairness, with income tax rates at the top tier that are closer to the rates high earners paid in the roaring 1990s, would go a long way toward restoring the public investment that Minnesota needs to help maintain its lofty position in the consumer-spending rankings and support broad-based economic growth.

And not to worry, there would be plenty left over for "super ultra premium" vodka, as well as all the other spending that you can do better than the government can.

Dane Smith is president and Charlie Quimby is a communications fellow at Growth & Justice, a nonpartisan economic think tank based in St. Paul.

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