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Dangers of “Give It Back”—Remember Jesse Checks?

March 05, 2014 By Jeff Van Wychen, Fellow and Director of Tax Policy & Analysis

Conservative leaders want to return the entire $1.233 billion state budget surplus to Minnesotans through a “Give It Back” Act, which—in addition to tax cuts Governor Dayton and other progressives already embraced—would include estate tax reductions and other tax cuts yet to be determined.

The “Give It Back” Act is reminiscent of the heady days of 1999 to 2001, when state policymakers responded to a string of state budget surpluses with a string of tax cuts, including two large income tax reductions, sales tax rebates (remember the “Jesse checks”?), and the elimination of the general education property tax.

The aftermath of these policies left the state with insufficient resources to cover its long-term commitments, resulting in recurring budget deficits over the next several years. Because anti-tax leadership could not fathom the notion of state tax increases to counteract the problems caused by the state tax cuts of 1999 to 2001, the only available option was a string of spending cuts that led to large real per pupil cuts for K-12 education, increasing class sizes, soaring higher education tuition costs, cuts in local government budgets combined with perennial property tax increases, and a disinvestment in state infrastructure needs. In short, the last time state policymakers “gave it all back,” the outcome was not what anyone predicted or desired. Let’s not repeat past mistakes.

The thing to remember about the $1.233 billion budget surplus revealed in the February forecast is that it is only a projection of state finances for the current biennium that is only one-third complete. The revenues anticipated to enter state coffers over the next 16 months may or may not meet expectations. If they do not, the state will be back in budget deficit mode—which will mean renewed funding cuts for education, more local property tax increases as state budget woes are shifted to local governments, and renewed disinvestment in important public assets.

By the same token state policymakers should also be cautious to avoid permanent spending increases that would place state finances in a similar fiscal conundrum. Fortunately, there is a course for dealing with the current surplus that is both sensible and bi-partisan. In 2009, the Minnesota Budget Trends Study Commission, consisting of members appointed by the then DFL-controlled legislature and Republican Governor Tim Pawlenty, recommended that the state budget reserve—currently at $661 million—be increased to $2.1 billion in order to “manage cyclical economic volatility.”

The projected surplus for the current biennium is not large enough to bring the budget reserve up to the level recommended by the Commission, particularly after the federal conformity and B2B tax reductions likely to be approved on a bi-partisan basis during the current session. However, dedicating the remainder of the surplus in excess of the agreed upon tax increases would leave the state better equipped to deal with future economic instability and could help restore the state’s AAA credit rating, which was lost as a result of the shoddy budget practices employed in response to past budget crises.

The “Give It Back” Act is another public relations stunt bought to us by the same anti-tax clique responsible for a decade of state general fund deficits, accounting gimmicks, and ill-conceived budget cuts. Such a “give back” would undermine future state budget stability and jeopardize the important public investments in education, infrastructure, affordable housing and healthcare, and workforce development made during the 2013 session. The sensible and bi-partisan use of surplus dollars would be to enhance state budget stability in the face of future economic uncertainty by beefing up the state budget reserve.

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  • Clark Bergman says:

    March 10, 2014 at 9:01 am

    Have we paid the school debt yet?  Maybe just last week?

    $ 1 billion is only about 5% of the current annual budget, less than 3 weeks!  Come to me when the surplus is around 1 year and we can talk.  Democrats want to spend surpluses on new programs.  Republicans on permanent tax reductions or programs that benefit their base.  Does the surplus include the deficit in the stadium fund?

  • Everett Flynn says:

    March 10, 2014 at 11:37 am

    It takes enormous political courage and insight to communicate to the public why this “give-it-back” notion is a poor idea, or as I’d rather put it:  stupid.  Comparing this current trend to the era of the Jesse checks is perfectly germaine.  Oh how wonderfully populist it sounds and oh how Republicans like to use disingenuous ploys like this to portray themselves as defenders of the little guys.  But those of us with longer memories and a genuine sense of fiscal responsibility know better.  Taxes are not theft; nor do surpluses mean citizens are taxed too heavily.  Economic cycles are just that… cyclical.  Build up the reserve; make some sensible, prudent investments in something that’s been sorely neglected.  Resist the give-back nonsense perpetuated by the right, and make a rational argument that talks the electorate off the ledge and reminds them they are NOT Pavlovian dogs trained to salivate uncontrollably at the sound of the phrase “tax cuts.”

    • Dan Conner says:

      April 30, 2014 at 9:17 am

      Agreed Everett!!

  • john sherman says:

    March 10, 2014 at 3:30 pm

    Even before Jesse, there was Al Quie.  The budget was in comfortable surplus when Al Quie ran on the platform that the surplus was the taxpayers’ money and the state ought to give it back.  He won and the state did.  The economy went sour and the budget got seriously out of whack.  Quie called an emergency session to make up the deficit; unfortunately, his budget director was an incurable optimist who predicted an immediate upturn in the economy and therefore Quie requested very minor tax increases.  This happened several times and the legislature seemed to routinely return for special sessions.  Eventually, Quie called for a panel of deep thinkers to figure out what was to be done:  the conclusion was that the state should still have a surplus but call it a “rainy day fund.”

  • T_Bone says:

    March 10, 2014 at 5:57 pm

    I love it when liberals demand that the minimum wage is increased so that people can spend more money and therefore help the economy, but out of the other side of their mouth disagree that returning money to the overtaxed citizen won’t do the same.  My guess is that if there was a little accountability as to how the surplus money was spent (or perhaps saved!) there would be fewer arguments.

    The pursuit of happiness.

    • Jeff Van Wychen says:

      March 29, 2014 at 12:06 pm

      I love it when right wingers attack an unfair caricature of the progressive position and then try to pass it off as a coherent argument.  I’m all for cutting taxes on working households through mechanisms like the renters’ property tax refund (PTR) and the Working Family Credit, which have the same net effect as a higher minimum wage: putting dollars into the pockets of low-income households.  What I don’t support are tax giveaways to high-income households that are already paying a lower state & local effective tax rate than their less well off neighbors; these types of tax breaks provide less economic bang for the buck than dollars put into the pockets of low-income families through a fair minimum wage and a progressive PTR and WFC.

      “Pursuit of happiness” rings hollow to someone working 50 hours a week and still living in poverty.

    • Dan Conner says:

      April 30, 2014 at 9:15 am

      Poor T-Boone.  If you are among the 1% of wage earners, self-employed, or unearned income people in Minnesota you better get used to paying more taxes.  You aren’t paying your share now.  As for minimum wage, it should be greatly increased.  I see the Swiss just upped theirs to $25/hour.  Also, I favor a State that encourages unions.  It is the countervailing force for big business.  People have every right to combine and negotiate their pay.  How can one call our land free without it.  One can not have liberty when union participation is restricted.  A person against unions is not a patriot.  They are selfish, greedy, or ignorant.

      It is well known among economists that the economy is boosted far more by giving dollars to the poor and/or middle class because they spend a far greater percentage of their income.  The rich hide it.  By the way, “returning money to the overtaxed” is incorrect.  If it was payroll tax, or taxes on wages, the wage earner never received the income to return.  If self-employed, these people people have done business off the rest of the State and country.  They owe some of what they took out of the community.  Businesses don’t make their money in a vacuum..

      Also, your “guess” about accountability is exactly that.  A guess.  then, you never even substantiate the silly statement by saying what that “lack of accountability” is.  Your post is all innuendo and not facts.  It might help if you drop the liberal and Government hate and study some facts.  Minnesota is doing great with Governor Dayton.  Far better than the slug Pawlenty.