Your reading assignment today is the first installment. It’s a prerequisite to this post.
In his condemnation of Minnesota’s corporate income tax, one of Todd Rapp’s criticisms in his Sunday op-ed is that it is “volatile,” and he quotes some statistics to prove it. Yes, tax collections go down when times are bad, but that also means they go up when times are good! Why not, then, use a portion of the revenue when the times are good, to buy capital projects for cash, and maybe even call some bonds. The latter would actually help cash flow when times were leaner, because there would be less debt to service. Spot says that’s a two-fer.
There may be some bond market problems with a call approach, but you could accomplish essentially the same thing by setting up more-or-less untouchable sinking funds with surpluses to be used for future debt service: money in the bank. We used to call putting a little money aside “reserves,” or the “rainy day fund.”
These observations are true with respect to the individual income tax as well as the corporate income tax. We ran surpluses in the general fund budget for a while, and when Jesse Ventura was governor; it was the collective wisdom of the Legislature – Republicans and Democrats alike – that we should have a permanent tax cut, mostly for the top earners, of course. Nobody in the state senate, apparently save John Marty, thought that we’d ever have an economic downturn again. But it wasn’t that long before we were talking about a “structural budget deficit.” We wrung the neck of the chicken that laid the eggs and ate it.
Republicans like to talk about “kitchen table” economics; how families sit around the kitchen table and decide how to tighten their belts when times get tough. But here’s the Republican kitchen table:
Well kids, you know how we’ve been scraping by, avoiding trips to the doctor, not putting any money aside for your college educations, and that kind of thing? Well, I’ve got great news! I got a raise today. Now, I can cut back to four days a week, so long as we all still avoid the doctor, each of you thinks about post-high school job hunting and don’t get any big ideas about college.
That’s what we did when we made permanent cuts in the personal income tax. And the deep thinkers, like the Todd Rapp, want to make it worse by eliminating the corporate income tax.
More to come.