Support the Minnesota Budget Project on Give to the Max Day

November 16, 2011

It’s Give to the Max Day, when thousands of Minnesotans say a special thank you to the nonprofits they value. Please add the Minnesota Budget Project to your list of donations today. Your gift will help us continue our work advocating for tax and budget decisions that invest in Minnesota and build a prosperous economic future.

Our work takes on special importance in these difficult economic times. The Minnesota Budget Project is out in front calling for a balanced approach that strengthens the building blocks of economic growth: high-quality schools, strong communities, educated workers and opportunities for all Minnesotans to succeed.

Here’s a quick reminder of what your contribution to the Minnesota Budget Project means:

  • You’ll support the timely non-partisan analysis of budget and tax debates that you count on at Minnesota Budget Bites.
  • You’ll support our work to stand up for balanced solutions that include fairly raised revenues. You’ll see us testifying at legislative hearings, talking to the news media, and ensuring that those whose voices aren’t always heard can be part of the debate.

Please make your tax-deductible contribution today!

Your gift today can work even harder because it makes us eligible for $1,000 prizes drawn every hour. Each donation to us – no matter at what time or how often – gives us one more chance in the drawing.

Our work depends on donors like you to step up on Give to the Max Day and year-round. Thanks for your support today!

-Nan Madden

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Tax changes for online hotel booking create level playing field

November 3, 2011

It was little noticed, but Minnesota did score a small victory this legislative session: The state budget created a level playing field between similar businesses, and it updated our tax system to catch up with modern technology.

Online booking agencies such as Priceline were collecting less sales taxes to book Minnesota hotel rooms than traditional travel agents or even the hotels themselves. The system created a competitive advantage for online companies and revenue losses for state and local governments.

Governor Dayton proposed closing the loophole in his budget. The proposal resurfaced as part of budget negotiations and was included in the final tax bill. It will raise $9 million in FY 2012-13.

Here’s how the online booking system works, and what the change means: Hotels contract with online travel companies to market some of their rooms. The online agencies get a discount room rate, then sell them to customers at higher prices. The problem is that the online agencies were only collecting sales tax on the wholesale room rate, not the higher retail rate that customers paid, as hotels and traditional travel agents do. With the change in Minnesota’s tax law, online travel companies will collect the sales tax on the retail price.

On any individual transaction, the difference between the taxes on wholesale and retail room rates is small. But it adds up. Online agencies account for an estimated 14 percent of room receipts in 2011, according to the Center on Budget and Policy Priorities. It reports that the difference costs state and local governments roughly $275 million to $400 million a year nationally. It recommends states update their tax laws to keep up with technology, arguing that:

At a time when sharply reduced revenues are forcing states and localities to cut health care for the poor, lay off teachers, close fire stations, and increase tuition at state universities and community colleges, all of which are reducing economic growth, it is counterproductive to permit [online travel companies] to exploit a tax loophole that pads their profits at the public’s expense.

Minnesota’s new law leaves some questions unanswered. Some Minnesota local governments have their own local lodging taxes. In cases where the Minnesota Department of Revenue collects the lodging tax for the local unit of government, the new law will apply. If the tax is collected locally, the new law may or may not apply, depending on the ordinance’s wording.

Treating online travel agencies and other similar companies equally is part of the larger national debate over a level playing field in e-commerce. On a larger scale, this debate asks whether it fair for online retailers to sell taxable products without collecting sales tax while Main Street businesses selling the same product have to collect the sales tax.

At the national level, the proposed Main Street Fairness Act would make it easier for states to require remote sellers to collect sales taxes on Internet and catalog purchases, putting them on a level playing field with their Main Street competitors. Governor Dayton’s budget also would have required “remote sellers who sell to Minnesota purchasers that are referred under an agreement by a business that has nexus (physical presence) in Minnesota to collect the sales and use tax on those purchases.” That proposal would have raised $11 million in FY 2012-13, but it was not part of the final budget deal.

-Scott Russell


State revenue and cash flow steady, but economic worries remain

October 12, 2011

First the good news. The State of Minnesota started out the first quarter of the FY 2012-13 biennium with higher-than-expected revenue. From July through September, the state collected $59 million above estimates, up about two percent from earlier projections, according to the state’s October 2011 Economic Update. Corporate income tax, individual income tax and sales tax receipts all exceeded forecasted levels.

While revenue is up slightly, Minnesota’s cash reserves remain low. Still, state financial experts reported at a legislative hearing last week that they do not expect that it will be necessary to take any administrative actions or turn to short-term borrowing in order to cover our bills during the current fiscal year. (State leaders took out a line of credit in 2010, just in case.)

The national economy continues to be the problem. The October Update reiterated concerns raised earlier this summer:

While most economists expect the U.S. to avoid a recession, real GDP growth over the next six to nine months is expected to be very slow…Forecasters’ major concern is that the tepid growth rate now seen likely through at least mid-2012 leaves the expansion dependent on the absence of extraordinary events and the avoidance of policy errors both in the U.S. and in the Eurozone.

State economist Tom Stinson says Minnesota will likely face a new deficit for the current biennium, MPR reported. When Governor Dayton and the Legislature made FY 2012-13 budget decisions, the national economy was expected to grow at a somewhat respectable pace – 3.2 percent growth in GDP in 2011 and 2.9 percent in 2012. The latest GDP growth estimates have been cut by about half, to 1.7 percent for 2011 and 1.4 percent for 2012. The steep drop in economic growth means a decline in state revenues, which increases the likelihood that a deficit will open up within the current biennium.

Federal and state leaders need to steer a careful course. This subdued level of economic growth assumes Congress will extend the expiring employee payroll tax cut into 2012, a proposal that is part of President Obama’s jobs bill. Stinson said last week that if Congress fails to extend the payroll tax cut, it would further reduce GDP growth expectations by one percent in 2012, resulting in a virtually no-growth scenario nationally.

We’ll know whether the state will face a deficit in the current biennium – and the size – when Minnesota Management and Budget releases the November Forecast. And on January 24, the Minnesota Legislature will reconvene. Given the current fiscal instability, policymakers need to focus on supporting Minnesota families struggling in the slow economy, and investing in the future economic health of the state.

-Scott Russell


Going full circle on the cycle of advocacy – tell your story

October 6, 2011

As the leaves fall, many of us are bracing for the next legislative session and continuing our advocacy for critical state services.  But we also know that the cycle of advocacy is a complete circle—including raising awareness of the consequences of past budget cuts in order to strengthen our case for a balanced approach to meet our state’s future needs in the next budget.

If you are seeing first-hand how families and communities throughout Minnesota are suffering because of severe cuts in the state budget, your stories can help us ensure that the public and policymakers see the human impact of over $2 billion in budget cuts.

Together we can complete the cycle of advocacy and shape public opinion to prevent such severe cuts in the future. If you know about someone who was harmed by a budget cut, or if you or your organization has a story to share, please complete our online Tell Your Story form. We’ll be in touch after we receive your information to discuss ways to publicize it.

For more information, contact me at 651-757-3063 or lgardner@mnbudgetproject.org.

– Leah Gardner


President Obama’s proposed jobs bill would support jobs, economic growth in Minnesota

September 27, 2011

The American Jobs Act proposed by President Obama could create or support more than 26,000 jobs and inject at least $1.5 billion into Minnesota, according to estimates by the Obama Administration. Those jobs include teachers, police, firefighters, engineers, construction workers and more. The Jobs Act is a package of tax cuts for employers to provide incentives for hiring, infrastructure investments, assistance to those looking for work, and tax cuts for individuals.

The proposed strategies include some of the most effective ways to support economic growth. The Center on Budget and Policy Priorities reinforces in a recent statement:

We need to boost the economy in the short run by enacting legislation that would, for example, extend unemployment insurance benefits and the temporary cut in payroll taxes beyond their scheduled expiration at the end of this year, provide more assistance to states to temper their need to impose more layoffs and cut more spending to balance their budgets, and create programs that would put people back to work on projects such as renovating and modernizing America’s schools. Such temporary policies would help boost growth and employment now without adding significantly to long-term deficits and debt.

Some of the main components of the bill, and the impact on Minnesota estimated by the Administration, are:

Tax cuts for employers

  • Payroll taxes would be cut in half for employers’ first $5 million in wages. In Minnesota, an estimated 120,000 employers would benefit from this cut.
  • Employers who increased their payroll (by adding new workers or increasing the wages of current workers) would pay no payroll taxes on up to $50 million of the increased payroll.
  • Employers would receive tax credits of $5,600 to $9,600 for hiring unemployed veterans, and a $4,000 tax credit for hiring long-term unemployed workers.

Infrastructure investments

  • The bill invests $50 billion in highways, transit, rail and aviation. The highway and transit portion alone would provide an estimated $608 million in Minnesota and support a minimum of approximately 7,900 jobs.
  • Layoffs of up to 280,000 teachers nationwide would be prevented. The bill would also support hiring thousands more teachers and keep police and firefighters on the job. Minnesota would receive an estimated $504 million. These funds would support up to 6,900 teacher and first responder jobs.
  • At least 35,000 public schools nationwide would benefit from school infrastructure investments. Minnesota’s share totals $275 million and would support up to 3,600 jobs.
  • Hundreds of thousands of vacant and foreclosed homes and businesses would be rehabilitated. Minnesota could receive approximately $101 million, and could apply for more through a competitive bidding process.
  • Facilities at community colleges would be modernized. Minnesota could receive $88 million.

Pathways back to work

  • The Unemployment Insurance (UI) system would be reformed to help the long-term unemployed transition back to work. An estimated 71,000 Minnesotans are among the nation’s long-term unemployed.
  • Unemployment Insurance benefits would be extended, preventing at least 13,400 unemployed Minnesotans from losing their benefits during the first six weeks.
  • Low-income youth and adults would access work opportunities or obtain job training in growth industries through the Pathways Back to Work Fund. This could place 6,500 Minnesota youth and 1,700 Minnesota adults in new jobs.
  • Hiring discrimination against the unemployed would be prohibited.

Tax cuts for workers

  • The payroll tax cut passed in December 2010 would be expanded to cut workers’ payroll taxes in half in 2012. A typical Minnesota household with an income of around $56,000 would receive a tax cut of approximately $1,740.

When releasing the Jobs Act, President Obama emphasized that the bill would not add to the federal deficit. He proposes to pay for the bill through tax changes including new limits on itemized deductions for high-income Americans (individuals with incomes above $200,000 a year and families with incomes above $250,000 a year), by closing tax preferences for the oil and gas industries, and by changing the depreciation rules for corporate aircraft.

While it is highly unlikely that Congress will approve the entire bill, discussions have begun on Capitol Hill to determine whether agreement can be reached to pass parts of the bill. The continuing weak economy and high unemployment increase the pressure on the Administration and Congress to act.

-Steve Francisco


New analysis looks at details of the 2011 budget agreement

August 15, 2011

As the dust settles from the nearly three-week state government shutdown and the whirlwind special session, many advocates have been sorting through spreadsheets and bill language to figure out just what happened. At the Minnesota Budget Project, we’ve just released our new analysis of the budget compromise reached between Governor Dayton and the Legislature, 2011 Budget Decisions Will Undermine Current Recovery and Hurt State’s Long-Term Economic Success.

Unfortunately, the agreement reached between Governor Dayton and the Legislature fails to find a sustainable way to fund the state’s priorities, cuts services that help Minnesotans who continue to struggle during the slow economic recovery, and does not invest in the state’s long-term economic success. The agreement delays $2.2 billion in payments to school districts, borrows $640 million from the future through tobacco bonds, and reduces funding for vital public services by more than $2 billion.

Impact of FY 2012-13 Budget Proposal on the General Fund

Our new analysis provides more details on what the compromise agreement will mean for many valued public services, such as K-12 education, health care, child care, services for the elderly and those with disabilities, higher education, workforce development, transit, public safety, and taxes.

-Christina Wessel


Minnesotans favor budget road not taken: Balance spending cuts and new revenue

August 8, 2011

Two out of three Minnesota residents want state leaders to balance the budget using a mix of tax increases and spending cuts, according to a new MinnPost poll. It found 66 percent favor a combination of spending cuts and tax increases. Only 23 percent want spending cuts only.

This finding is consistent with other polls.

  • The Star Tribune reported in May on a Minnesota Poll that said: “Sixty-three percent of respondents said they favor a blend of higher taxes and service reductions to tackle the state’s $5 billion projected deficit. Just 27 percent said they want state leaders to balance the budget solely through cuts.”
  • Public Policy Polling survey published in June asked Minnesotans: “Would you support a tax increase on the wealthiest 2% of Minnesotans to help balance the state budget, or do you think the budget should be balanced through cuts only?” And 63 of respondents favored the tax increase, compared to only 32 percent that supported cuts only.

Minnesota public opinion has been clear and consistent in its support for a balanced approach, including new revenues. This approach protects critical services such as education, health care, and support for seniors and people with disabilities. Numerous editorials from around the state supported a balanced approach as well.

Minnesotans support raising revenue when they understand what’s at stake. As Growth & Justice wrote in 2010:

Over many years, polls in Minnesota consistently have shown support for revenue-raising if the question is asked with even a smidgeon of context that reminds people what taxes pay for. Ask people point-blank whether they want to pay more in taxes, and they tend to say no. Ask them point-blank whether they want to slash investments in schools and roads and nursing homes, and they also will say no.

Unfortunately, the final budget deal was made up of spending cuts and timing shifts and other one-time fixes.

The legislative session is over, but the debate is not. We still have a mismatch between what our tax system raises and what it costs to fund our state’s priorities.

When two out of three Minnesotans support a balanced approach, legislative leaders should listen. They should do the right thing and create a sustainable budget — and a prosperous future — using a mix of spending cuts and new revenues, raised fairly.

-Scott Russell


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