Budget

Arnold Expected To Veto Budget

Joe Mathews — Tue, 16 Sep 2008 19:13:00 -0400

He has called a press conference for 3 p.m. Pacific, apparently to do just that.

Voters Reject Second Budget In Three Weeks

Joe Mathews — Mon, 09 Jun 2008 15:33:00 -0400

In the Connecticut town of Avon, voters have the right to hold as many as three separate referenda on the town budget before officials can enact a spending plan themselves. This spring, voters have used the referendum twice -- twice, in fact, in the past three weeks -- to vote down the town government's proposed budget. A third referendum is scheduled for June 25.

Education Cuts Getting in the Way of Redistricting, Budget Reform?

Joe Mathews — Mon, 14 Apr 2008 20:30:00 -0400

Here's my look at how Schwarzenegger's proposed budget cuts, especially on education, are getting in the way of his push for budget reform and a redistricting ballot initiative that appears headed for the November ballot in California.

Democratizing Capital

Patrick Doherty — Wed, 26 Mar 2008 15:57:00 -0400

In each formulation of American grand strategy since World War II -- until we inexplicably stopped such planning in 1992 -- the President and Congress relied on the power of the American economy to do the strategic heavy lifting. Sixteen years, however, is far too long for even the American economic engine to coast without a strategic re-alignment, and the stimulus, bailouts, subsidies and even military operations that naturally ensued have forced even Martin Wolf of the FT to declare the "dream of global free market capitalism" dead. Writing in the upcoming issue of The Nation, Sherle Schwenninger, looks to the architects of the New Deal and finds three lessons essential for re-tooling the American economic engine and bring market capitalism back home to America's shores.

Democratizing Capital

by Sherle R. Schwenninger | The Nation | April 7, 2008

Historical analogies are never exact. Yet many of the choices we have before us today are similar to ones that an earlier generation of progressives faced as the 1932 election approached. As we do today, progressives then confronted a society beset by a huge gap between classes and an economy laid flat by the bursting of the speculative excesses of the previous decade. To be sure, our economy is nowhere near Depression levels of collapse. But the choices New Deal progressives made are worth revisiting because they provide sound first principles for dealing with the economy and government today. Indeed, many of those principles are even more appropriate for today's world.

The first lesson to be learned from this earlier era is that a large middle class requires an economy that generates a broad base of jobs paying middle-class wages. The New Dealers were not opposed to "rigging" the labor and financial markets to achieve this result. New Deal progressives believed the economy should exist to serve society, not the other way around, and that the government has a duty to shape the economy to meet middle-class aspirations. A high-wage, middle-class society would, in turn, be good for the economy: living wages would not only ensure adequate demand for the economy but in so doing would spur new investment and productivity growth, creating a virtuous circle of rising living standards.

The belief of New Deal progressives in an economy that could create good middle-class jobs stemmed in part from their resistance to large social welfare subsidies to individuals, on the grounds that this would encourage an unhealthy dependence on the state. Moreover, even though they favored progressive taxation, New Dealers were skeptical of a society dependent upon the permanent redistribution of income. The principal goal of many New Deal programs was not to relieve the conditions of poverty--although they often did so--but to build physical and human capital that would allow people to escape permanently from poverty. Thus New Dealers emphasized government programs that expanded education, spread property ownership, invested in America's common physical and knowledge capital, and seeded the industries of the future. It was not perfect, in large part because it preceded the civil rights revolution and thus left out millions of African-Americans. But it did build the largest and most secure middle class America has ever known.

Today we see the consequences of a much different way of thinking about the economy and society. Over the past two decades we have been told that globalization is an immutable force and that we must bend to its demands, embracing the agenda of free trade, financial deregulation and less progressive taxation. The best we can do, we're told, is to let globalization run its course and compensate the losers, even though no amount of new social welfare measures could compensate for the loss of millions of good-paying manufacturing jobs. Thus, without any real debate, America's political elites have chosen for us a highly stratified, low-wage society with great costs to our middle-class way of life and to our productive economy.

The second New Deal principle is about achieving a high-wage economy and at the same time more widely distributing the capital and skills for wealth creation. The principal policy tool the earlier generation used was massive public investment and public building. The public investment programs they pursued not only created many new middle-class jobs but also laid the foundation for a more productive economy, which led to even more middle-class jobs. Agencies like the Tennessee Valley Authority in the 1930s and '40s were followed by even more extensive public investment initiatives in the postwar years. From 1950 to 1970, the government spent more than 3 percent of GDP on public infrastructure alone. It built everything from highways to schools, power systems to parks.

Throughout the New Deal era, public investment was America's way of enacting industrial policy. It was understood that public investment paid for itself many times over. The GI Bill alone generated returns of up to $7 for every dollar invested. And because it generated returns to the economy and society, New Dealers in the postwar period were not afraid to raise taxes or to borrow in order to ensure adequate levels of public investment. And borrow they did, even though the national debt was a much larger percentage of GDP than it is now.

For the past few decades, however, we have made a very different choice. As concerns over the budget deficit have grown, and as tax-cutting mania has taken hold, we have cut back on public investment. Since 1980 we have devoted less than 2 percent of GDP to public infrastructure and have allowed federal spending on basic research and development to decline as a percentage of GDP as well. As a result, a backlog of public investment needs--clogged roads and ports, collapsing bridges and levees, uneven broadband access, an antiquated air traffic system, an undersized energy infrastructure--has begun to cut into our economic growth and undermine our efficiency.

A third principle of middle-class America that the New Deal offers us relates to the concentration of power and capital. Earlier progressive reformers distrusted such concentrations. Not only did they threaten democracy; they also warped the economy and distorted consumption and investment. Government therefore must be a strong countervailing force to big business and oligarchic power, and must be organized so that it cannot be captured by one economic group at the expense of another or the general public.

The New Dealers were particularly concerned about the power of Wall Street and the financial community. They feared a national credit system that was dependent on Wall Street bankers, whose interests were not always aligned with the needs of homeowners, farmers and small and medium-sized producers. They therefore sought to democratize capital by creating myriad credit institutions that would ensure that all regions and sectors of the economy had access to capital. They created a variety of federally subsidized credit programs to enable people to construct homes and start businesses and to allow states and municipalities to build schools and modernize infrastructure. It was here that the New Deal was most creative--combining a strong federal state with the local and regional decentralization of capital and the local and regional control of these programs and institutions.

As with other first principles of a middle-class America, we have seen a reversal of priorities over the past few decades, as big financial institutions have again asserted their influence over the economy and economic policy. The new power of Wall Street has been evident in its successful push for financial liberalization and deregulation, in the emphasis accorded the deficit and concerns about inflation as opposed to full employment, and until recently in Washington's preference for a strong dollar, which favors financiers over real producers. This triumph of Wall Street over Main Street has been responsible in part for the hollowing out of the tradable-goods sector and for the asset bubbles and predatory lending that have wreaked havoc on the economy. Indeed, one of the first things the New Deal would have us do is reregulate the financial system and put the interests of the productive economy over those of Wall Street.

In all these respects, whether it be high wages, public investment or the decentralization of financial power, the New Deal succeeded because it changed the way the economy worked. And it did so by marrying progressive reforms with Americans' preference for independence, whether from government subsidy or big-business paternalism. This is the enduring lesson of the New Deal.

QUALITY: Comparative Effectiveness in the Federal Budget

Tom Emswiler — Thu, 13 Mar 2008 20:00:00 -0400

Today in Washington, the House and Senate consider their respective versions of the budget before they close up shop for two weeks of spring recess. By reading the budget you can usually get a sense of the big-ticket items, but smaller-ticket items are usually left out of the text in the House, and only added in the Senate by floor amendment.

That's why I'm so surprised that the budgets of both Rep. Spratt and Sen. Conrad included specific text to create a reserve fund for a public-private entity for comparative effectiveness research -- i.e a way to find out what really works for patients and at what cost.

As the Senate Budget Committee's supplementary materials state:

"The purpose of such research would be to evaluate and compare the clinical effectiveness of two or more health care interventions, treatment protocols, procedures, medical devices, diagnostic tools, pharmaceuticals, and other processes or items used in the treatment or diagnosis of patients. This information could lead to savings over the long-term by allowing providers to avoid treatments that may be clinically ineffective, while at the same time improving health care outcomes."

Hey, that sounds good, right? Even if you don't agree, there's an out taught to me by physician-economist Alan Garber last year at the Federal Reserve Bank of San Francisco. It's called reference pricing. For example, a private insurance company can cover two treatments for a specific medical problem, but if one is cheaper and/or more effective, the patient's share of the cost is lower. If the patient wants what has proved to be a more expensive and/or less effective option, they can have it -- if they're willing to pick up more of the tab (note: Medicare is a passive claims payer and is unlikely to adopt reference pricing).

The House Ways and Means Health Subcommittee held a huge, three-panel hearing on this issue last year, and it's been in the news more recently because of CBO Director Peter Orszag (Health Populi's Jane Sarasohn-Kahn recently covered this well both last fall and more recently). Heck, I even wove it into my winding WaPo.com piece last year.

Oprah's favorite health economist Uwe Reinhardt says we should treat the federal budget like a memo to God regarding our nation's priorities. I'd say making health care more effective and affordable fits the bill.

A Week in our Expensive Wars

Patrick Doherty — Wed, 05 Mar 2008 14:56:00 -0500

The United States loses 10 Bradley fighting vehicles a week in Iraq and Afghanistan. In addition to the tragic loss of our fighting men and women this figure represents, this loss rate translates to a cost of $30.7 million dollars. Add it all up and we're spending about $3.5 billion per week, but only $350 million on pay for our troops. Writing in TomDispatch, New America's Bill Hartung helps us all get a handle on this large, large number.

War is Hell, But What the Hell Does it Cost?

By William D. Hartung

War is hell -- deadly, dangerous, and expensive. But just how expensive is it?

In a recent interview, Nobel Prize-winning economist Joseph Stiglitz asserted that the costs of the Iraq war -- budgetary, economic, and societal -- could reach $5 trillion.

That's a hard number to comprehend. Figuring out how many times $5 trillion would circle the globe (if we took it all in one dollar bills) doesn't really help matters much, nor does estimating how many times we could paper over every square inch of Rhode Island with it. The fact that total war costs could buy six trillion donuts for volunteers to the Clinton, Obama, McCain, and Huckabee campaigns -- assuming a bulk discount -- is impressive in its own way, but not all that meaningful either. In fact, the Bush administration's war costs have already moved beyond the human scale of comprehension.

But what if we were to try another tack? How about breaking those soaring trillions down into smaller pieces, into mere millions and billions? How much, for instance, does one week of George Bush's wars cost?

Glad you asked. If we consider the wars in Iraq and Afghanistan together -- which we might as well do, since we and our children and grandchildren will be paying for them together into the distant future -- a conservative single-week estimate comes to $3.5 billion. Remember, that's per week!

By contrast, the whole international community spends less than $400 million per year on the International Atomic Energy Agency, the primary institution for monitoring and preventing the spread of nuclear weapons; that's less than one day's worth of war costs. The U.S. government spends just $1 billion per year securing and destroying loose nuclear weapons and bomb-making materials, or less than two days' worth of war costs; and Washington spends a total of just $7 billion per year on combating global warming, or a whopping two weeks' worth of war costs.

So, perhaps you're wondering, what does that $3.5 billion per week actually pay for? And how would we even know? The Bush administration submits a supplemental request -- over and above the more than $500 billion per year the Pentagon is now receiving in its official budget -- to pay for the purported costs of the wars in Iraq, Afghanistan, and for the Global War on Terrorism (GWOT). If you can stay awake long enough to read the whole 159-page document for 2008, it has some fascinating revelations.

For example, to hear the howling of the white-collar warriors in Washington every time anyone suggests knocking a nickel off administration war-spending requests, you would think that the weekly $3.5 billion outlay is all "for the troops." In fact, only 10% of it, or under $350 million per week, goes to pay and benefits for uniformed military personnel. That's less than a quarter of the weekly $1.4 billion that goes to war contractors to pay for everything from bullets to bombers. As a slogan, insisting that we need to keep the current flood of military outlays flowing "for Boeing and Lockheed Martin" just doesn't quite have the same ring to it.

You could argue, of course, that all these contracting dollars represent the most efficient way to get our troops the equipment they need to operate safely and effectively in a war zone -- but you would be wrong. Much of that money is being wasted every week on the wrong kinds of equipment at exorbitant prices. And even when it is the right kind of equipment, there are often startling delays in getting it to the battlefield, as was the case with advanced armored vehicles for the Marine Corps.

But before we get to equipment costs, let's take a look at a week's worth of another kind of support. The Pentagon and the State Department don't make a big point -- or really any kind of point -- out of telling us how much we're spending on gun-toting private-contract employees from companies like Blackwater and Triple Canopy, our "shadow army" in Iraq, but we can make an educated guess. For example, at the high end of the scale, individual employees of private military firms make up to 10 times what many U.S. enlisted personnel make, or as much as $7,500 per week. If even one-tenth of the 5,000 to 6,000 armed contract employees in Iraq make that much, we're talking about at least $40 million per week. If the rest make $1,000 a week -- an extremely conservative estimate -- then we have nearly $100 million per week going just to the armed cohort of private-contract employees operating there.

Now, let's add into that figure the whole private crew of non-government employees operating in Iraq, including all the cooks, weapons technicians, translators, interrogators, and other private-contract support personnel. That combined cost probably comes closer to $300 million per week, or almost as much as is spent on uniformed personnel by the Air Force, Army, Navy, and Marines.

By one reliable estimate, there are more contract employees in Iraq alone -- about 180,000 -- than there are U.S. troops. There are thousands more in Afghanistan. But since many of these non-military employees are poorly paid subcontract workers involved in cooking meals, doing laundry, and cleaning latrines, the total costs for the services of all private-contractor employees in Iraq probably runs somewhat less than the costs of the uniformed military. Hence our estimate.

So, if $650 million or so a week is spent on people, where does the other nearly $3 billion go? It goes for goods and services, from tanks and fighter planes to fuel and food. Most of this money ends up in the hands of private companies like Boeing, Lockheed Martin, and the former Halliburton subsidiary, Kellogg, Brown and Root.

The list of weapons and accessories paid for from our $3.5 billion is long and daunting:

$1.5 million for M-4 carbines (about 900 guns per week);
$2.3 million for machine guns (about 170 per week);
$4.3 million for Hellfire missiles (about 50 missiles per week);
$6.9 million for night vision devices (about 2,100 per week);
$10.8 million for fuel per week;
$5 million to store and transport that fuel per week;
$14.8 million for F-18E/F fighter planes per week (one every four weeks);
$23.4 million for ammunition per week;
$30.7 million for Bradley fighting vehicles (10 per week).

And that's only a very partial list. What about the more mundane items?

"Laundries, showers, and latrines" cost more than $110,000 per week;
"Parachutes and aerial delivery systems" cost $950,000 per week;
"Runway snow removal and cleaning" costs $132,000 per week;
Flares cost $50,000 per week.

Some of these figures, of course, may cover worldwide military operations for the U.S. armed forces. After all, by sticking the acronym GWOT in the title of any supplemental war-spending request, you can cram almost anything into it.

Then there are the sobering figures like: $2.4 million per week for "death gratuities" (payments to families of troops killed in action) and $10.6 million per week in "extra hazard pay."

And don't forget that all the death and destruction lurking behind these weekly numbers makes it that much harder to get people to join the military. But not to worry, $1 million per week is factored into that supplemental funding request for "advertising and recruitment" -- not enough perhaps to fill the ranks, but at least they're trying.

Keep in mind that this only gives us a sense of what we do know from the public Pentagon request; there's plenty more that we don't know. As a start, the Pentagon's breakdown of the money in its "emergency" supplemental budget leaves huge gaps.

Even your own congressman doesn't know for sure what is really in the U.S. war budget. What we do know is that the Pentagon and the military services have been stuffing more and more projects that have nothing to do with the fighting in Iraq and Afghanistan, or even the war on terror, into those war supplementals.

Layered in are requests for new equipment that will take years, or even decades, to build and may never be used in combat -- unless the Iraq war really does go on for another century, as John McCain recently suggested. These "non-war" items include high-tech armored vehicles and communications devices for the Army as well as new combat aircraft for the Air Force.

Even though these systems may never be used on our current battlefields, they are war costs nonetheless. If they weren't inserted into the supplemental requests for Iraq and Afghanistan, they might never have been funded. After all, who wants to vote against a bill that is allegedly all "for the troops," even if it includes weapons those troops will never get?

These add-ons are not small change. They probably cost in the area of $500 million per week.

Given all of this, it may sound like we have a fair amount of detail about the costs of a week of war. No such luck. Until the "supplemental" costs of war are subjected to the same scrutiny as the regular Pentagon budget, there will continue to be hundreds of millions of dollars unaccounted for each and every week that the wars go on. And there will be all sorts of money for pet projects that have nothing to do with fighting current conflicts. So don't just think of that $3.5 billion per week figure as a given. Think of it as $3.5 billion… and counting.

Doesn't that make you feel safer?

William D. Hartung is the director of the Arms and Security Initiative at the New America Foundation. He is the author of And Weapons for All (Harper Collins, 1994) and How Much Are You Making on the War, Daddy? A Quick and Dirty Guide to War Profiteering in the Bush Administration (Nation Books, 2004). His commentaries on military and economic issues have appeared in the Washington Post, the New York Times, the Los Angeles Times, Newsday, and the Nation magazine.

[Source Note: Readers who want to check out the latest Department of Defense supplemental request for war-fighting funds can click here (PDF file) and read, "FY 2008 Global War on Terror Pending Request" from the Office of the Secretary of Defense.]

Copyright 2008 William D. Hartung

Loophole Heaven

Mark Paul — Tue, 04 Mar 2008 19:51:00 -0500

Just as major league ballplayers were taking the field for the first spring training exhibitions on Feb. 28, Arnold Schwarzenegger was putting taxes in play in California's budget debate.

"I am a big believer that when we have a financial crisis like this, we all should chip in," California's governor said about his state's two-year, $16 billion budget shortfall. "This why I totally agree with the Legislative Analyst’s Office when she says we should look at tax loopholes.... We should go after those tax loopholes."

It won't be hard to find them. California is a big-league loophole-creating machine. It takes only a simple majority of California's Legislature to carve out a tax loophole, but it takes a two-thirds vote to close a loophole or pass a budget. That imbalance has created a ratchet effect in California's tax code.

Legislators disinclined to support the annual budget have found that they can trade their vote for a nice tax loophole for their favorite group or industry. And once in law, the two-thirds rule makes loopholes nearly immortal. For example, even as the Legislature struggled in February to begin attacking the budget crisis, it failed to muster the two-thirds vote needed to close one of the most egregious loopholes, which allows buyers of yachts and private jets to duck paying sales and use taxes on their toys.

The result is a Swiss-cheese of a tax code, with little grounding in either economic efficiency or logic.

The California sales tax, as Irvine Fellow Annette Nellen pointed out at the Feb. 27 tax reform workshop jointly sponsored by New America and the University of California Center Sacramento, piles some of the highest rates in the nation on one of the narrowest tax bases. It exempts diesel fuel in trucks that carry cotton to market but not in trucks that carry cotton shirts to stores. It taxes the magazine you buy at the newsstand but not the same magazine you buy by mail subscription. If you wash your own clothes or mow your own lawn, you pay sales tax on your washer and your lawn mower; if you can afford to send your laundry out and hire a gardner, you pay no tax.

The California income tax is just as holey. It incorporates most of the exclusions, exemptions, and deductions in the federal tax code, including the biggies like the mortgage interest deduction and the exclusion of employer-paid health insurance premiums, then adds more than two dozen of its own, both big (a total exemption for Social Security benefits, which costs $1.8 billion) and small (a rice straw credit and a credit for transporting donated farm products.)

My two favorite loopholes (because they are among the most perverse) are those that give privileged treatment to the lucky over the diligent, to chance over work.

The first, a California special, exempts state lottery winnings from the state income tax. If you work hard in California, you pay tax on your wages. If you save and invest well, you pay tax on your dividends and gains. But if you pick the right six numbers in the state lottery, you're home free.

The second, which conforms to the federal code, awards a tax exemption to capital gains on inherited property (at an annual state revenue loss of $3.1 billion). This provision adjusts upward the tax basis on inherited property to its value on the day the giver dies, wiping out the receiver's for any gains previous to inheriting the windfall.

In other words, if you are shrewd enough, say, to have bought 100,000 shares of Cisco System at 8 cents a share in 1990, you would be looking at paying income tax on a $2.4 million gain if you sell. But if you are lucky enough to have had a parent shrewd enough to make that same trade (and generous enough to will the stock to you), you'd have the $2.4 million gain and no tax liability (and depending on when the parent died, perhaps a big paper loss to offset other gains.)

Favoring luck over work and saving may be bad tax policy. But then maybe that's what to expect in a state that got its big start when James Marshall came across gold in his sawmill. Eureka, indeed.

How Do/Should We Tax? Tax Reform for California's New Economy

Annette Nellen — Tue, 26 Feb 2008 22:47:00 -0500

This is the title for a 2/27/08 New America Foundation and UC Center Sacramento workshop in Sacramento. It will look at a variety of California tax and budget issues and possible remedies that also bring California's depression-era, industrial-based tax system into the 21st century. This blog post serves as place for further discussion on the topic and the workshop presentations.

Here is a link to my presentation topic on broadening the California sales & use tax base and lowering the rate. If other workshop materials are posted on the web, I'll add a link to them at this blog entry.

I look forward to your comments and online discussion.

Minnesota Governor to Form 21st Century Tax Reform Commission

Annette Nellen — Tue, 19 Feb 2008 00:00:00 -0500

In his 2/13/08 State-of-the-State address, Minnesota Governor Tim Pawlenty announced that he would create a 21st Century Tax Reform Commission to recommend tax reforms for the 21st century economy. Related to this, he also noted:

the state has a serious deficit
tax policies, job climate and large government have harmed economic growth
there is a need to reduce taxes
Minnesota should join other states and cap property taxes
there is a need to move the tax system from the 1960s to the 21st century
tax reforms should "encourage job growth, income generation, investment, entrepreneurial activity, research and exports"

Well, as the title of this blog would suggest, I think this is a good move for Minnesota. But, it won't be easy -- change rarely is.

Many states have had tax reform commissions that travel the state holding hearings and receive many comments from businesses, individuals, academics, and various organizations with lots of complaints and ideas. The final report is delivered and then, usually sits on a shelf. The National Conference on State Legislatures (NCSL) maintains a website with links to many of these reports. I testified before California's last tax reform commisssion (California Commission on Tax Policy in the New Economy) three times. The Commission's 12/03 report has lots of useful information and ideas, but sits on a shelf while California faces a budget shortfall partially due to not moving its tax system into the 21st century ways of living and doing business.

Some ideas for success:

Get serious legislative buy-in. While a governor can establish his/her own tax reform commission, there is no guarantee that anyone will do anything with the recommendations. And, if the recommendations are politically unpopular, which might happen, perhaps no one will use the report. This happened in 2003 with the President's Advisory Panel on Federal Tax Reform. It delivered its report in 11/05 and almost no discussion occurred anywhere. While President Bush has pushed for tax reform in a variety of ways (the panel, recent Treasury studies, and various tax law changes such as a reduced dividend tax), the work of the panel hasn't led to anything.

Why not introduce legislation to establish the Commission, let the legislators select some of the commission members and require that there be X number of legislative hearings on the final report within 3 months of its issuance and that the tax-writing committees and governor propose a set of coordinated tax law changes in response to the report and result of legislative hearings by a specified date.
Start educating the public now on the problems with the Minnesota tax system and the adverse impacts it causes now and in the future on the economy and the lives of Minnesotans.
Read the reports of other state tax reform commission. A lot of work has already been done in other states and a decent amount of it is likely relevant to Minnesota. (See the NCSL website.)
Use research already done in Minnesota and by various tax policy organizations. For example, see the list at the end of this blog entry (*).
Review tax reform work done by various state government organizations such as the NGA and NCSL.
Use and follow the principles of good tax policy in analyzing the current structure and any proposals. Doing so should lead to better proposals and help make the case for them. The California Commission used a set of principles designed by the AICPA Tax Division (disclaimer -- I chaired the AICPA committee that produced that set of principles). A Silicon Valley policy group modified the principles into a workbook with examples. When the State of Washington did a recent study, it also included home ownership as a principle to follow. For more information on tax principles to consider and details and links: (1) summary chart I prepared; (2) 9/05 GAO Tax Reform report, see section on "criteria for a good tax system;" and (3) the various reports of state tax commissions (see earlier NCSL link).
Many states do have tax systems based on the economy and ways of living in the 1960s. Moving them into the 21st century will not be easy. It will likely involve broadening the sales tax base to include more services and digital goods; moving to combined reporting (Minnesota already does this); eliminating expensive, overly generous, out-dated tax expenditures (even if it increases non-conformity with federal tax rules); improving use tax collection; eliminating tax pyramiding; considering green taxes, such as a carbon tax designed in a progressive manner (such as taxing utilities with a higher rate for homes greater than the average size); considering a split roll for any property tax cap; and not harming local governments in the tax reform process.
Remember that the longer a state takes to update its tax systems, the harder it becomes. For example, for states that tax the purchase of a music CD, but not downloaded music, the longer it waits to do so, the harder it is to convince the public that the downloaded music is equivalent to the purchase of a taxable CD, and the greater the total loss of revenue from the eroding tax base.

Examples of information already in existence for the Minnesota Tax Reform Commission:

Minnesota House Research on the sales tax base (10/02).
Minnesota Sales Tax Gap study (11/02).
(there are likely many more reports and data sets from Minnesota government agencies).
The Center on Budget and Policy Priorities has done some analysis of Minnesota's tax system (search for "Minnesota" at their website).
The Tax Foundation has also analyzed various aspects of Minnesota's tax system and business climate (which it ranks in the bottom 10). A search for "Minnesota" at its website produces several hits.
Various other local, state and national organizations that have studied various aspects of Minnesota's tax and fiscal structure.

Let's see what happens.

Tough Tax Questions for Presidential Candidates

Annette Nellen — Fri, 15 Feb 2008 00:00:00 -0500

The presidential candidates have mostly "tweaking" ideas for our tax system; they don't seem to be focused on the incredible budget and tax issues that will face the new president during the first term. Or, perhaps they just aren't being asked the right questions.

Pending fiscal challenges include:

Imploding health care spending - how will the government be able to continue paying its health care bills and what tax reforms should be pursued to help control costs and get health care coverage for more people.
The tax cuts enacted in 2001 and 2003 expire after 2010. That will cause a few million low-income individuals to start paying taxes and create a tax increase for millions more. Despite the tremendous cost of these cuts, it is unlikely that Congress will let them expire. But, how would extension be paid for? Also, the cuts tend to favor higher income individuals, what will the President suggest to try to make the system more progressive and how progressive do they think it should be.
The Alternative Minimum Tax continues to grow in terms of billions of dollars generated and millions of individuals subject to it. This is a flawed tax that needs to be dealt with. Continuing to apply a $50 billion bandaid year by year is not a responsible way to design a tax system or manage a budget.
There is a $345 billion tax gap (taxes owed that are not collected).
Elements of our income tax have not moved into the 21st century way of doing business. For example, international rules written back when the US was a big part of world GDP may not make sense today.
The system continues to just get too complicated which leads to errors and disrespect for the tax system.

So, what are some of the tough questions we should be asking candidates? Click here for a short article that explains more about the serious problems on the horizon and the tough questions we should be asking.

For some background on tax positions of the candidates, check out a helpful website from the Tax Foundation.