Minnesota Governor Tim Pawlenty is at it again. Like most states, Minnesota continues to face a sizeable budget gap as a result of the economic recession. In response, for the second year in a row, the state’s legislature passed a progressive tax increase aimed at mitigating the need to cut the state’s vital services. Also for the second year in a row, however, Governor Pawlenty has decided to veto that package.
The plan put forth by the Minnesota legislature would have created a new top income tax rate on incomes over $200,000 for married couples, and over $113,100 for single filers. The bracket, had it been enacted, would have expired in 2013 if the state’s budgetary situation had improved to the extent specified in the legislation. Overall, a mere 15% of the state’s budget gap would have been filled via the income tax hike, with most of the remainder being handled through spending cuts pushed by the Governor.
Despite the targeted, temporary, and modest nature of the hike, Governor Pawlenty repeated the same tired line regarding the “job-killing” aspects of the tax.
Unfortunately, Pawlenty demonstrated no such hesitation to tax hikes when he very recently agreed to raise taxes on low-income families via a reduction in the renter’s credit and the elimination of the state’s gas tax credit.
Despite the conservative mantra that all tax hikes harm the economy, current economic theory suggests that reductions in state spending are actually likely to do more harm to a state’s economy than targeted tax hikes.
Wayne Cox, director of the Minnesota Citizens for Tax Justice, recently explained this point in the context of the Governor’s veto: “Last year state economist Tom Stinson described Pawlenty’s cuts-only solution as the one that would reduce jobs the most. Pawlenty appears to be the one with the hearing problem. … Governor Pawlenty has taken his nine-iron to Minnesota’s jobs again.”