Friday, February 27, 2015

Wisconsin's supply-side economics is snake oil

by Tom Maertens
Mankato Free Press, Friday, February 27, 2015

The last two elections produced an unusual natural experiment involving Minnesota and Wisconsin, two states with similar histories, cultures and ethnic makeup. For purposes of comparison, Minnesota’s projected debt in 2010 was $5 billion — a “going-away present” from Tim Pawlenty — and Wisconsin’s $3.6 billion.

In 2010, Wisconsin elected a Republican governor, Scott Walker, and Republican majorities in the legislature, who followed the supply-side bible by reducing taxes on business and on the wealthiest. Walker also cut spending, including a 15 percent cut in education funding, and reduced tax credits for those on the bottom end of the earnings scale. More recently, he proposed cutting $300 million more from the University of Wisconsin system, 13 percent of its total funding.

Walker then attacked the collective bargaining rights of civil service unions with Act 10, crippling the unions, reducing the pay of public workers by 8 to 10 percent, and polarizing the electorate. He rejected federal money for rail transportation and Medicaid, and refused to establish a state health insurance exchange, despite the fact the federal government would have covered all health insurance and Medicaid costs for three years.

Walker claimed during a recent Iowa campaign stop that Wisconsin is running a budget surplus. He must have forgotten that his own administration announced last November that Wisconsin will face a $2.2 billion budget shortfall by mid-2017. Wisconsin’s transportation budget alone faces a $1 billion shortfall. The January 2015 estimate from Wisconsin’s non-partisan fiscal bureau shows a projected deficit of $283 million for just this fiscal year.

Minnesota, in contrast, elected a progressive governor, Mark Dayton, and handed control of both legislative houses to the DFL. Together, they legalized same-sex marriage, froze college tuition, made it easier to vote, increased primary education spending, instituted all-day kindergarten, expanded unionization and passed equal pay for women. The minimum wage was raised to $9.50, federal money for Medicaid expansion was accepted (leading to 35,000 additional people being covered), and a state health insurance exchange was created.

To pay for these initiatives, Minnesota raised taxes by $2.1 billion, principally on the top 1 percent of earners who, according to the Minnesota Department of Revenue, will pay 62 percent of the new taxes. Some business taxes were eliminated, but, unlike Wisconsin, tax relief went to the middle class as well.

Four years into this experiment, there is no question which state is doing better economically. Walker promised to create 250,000 private-sector jobs in his first term, but created only 102,000, leaving Wisconsin 34th in job growth, according to Forbes’s annual list of Best States for Business.

Wisconsin’s unemployment rate is 5.2 percent; Minnesota’s is 3.6 percent. The Twin Cities have the lowest unemployment rate of any major metropolitan area.

The money Pawlenty borrowed from education funds has been repaid, and Minnesota now has a surplus of over $1 billion. The health insurance exchange has been so successful that a mid-level health insurance plan in Minnesota costs $1,200 a year less than it does in Wisconsin.

Republicans like to credit Pawlenty’s tax cuts and reduced spending for the increases, but Minnesota’s job growth was below the national average during Pawlenty’s two terms and recovered only under Dayton. recently compared 14 existing rankings of the 50 states and the District of Columbia from the Census Bureau, the FBI, the Centers for Disease Control and others and then averaged out each state’s ranking.

Minnesota came out as the best state in the union to live in and Wisconsin just 17th. Similarly, Forbes put Minnesota at 2nd for quality of life and Wisconsin, again, 17th.

Minnesota surpasses Wisconsin with respect to per capita income, high school graduation rate, home ownership rate, life expectancy, infant mortality and percentage of people below the poverty line.

In addition, Minnesota has less violent crime, a higher well-being index, higher math and reading scores, and slightly less income inequality.

Two areas where Wisconsin does lead Minnesota is in political polarization, and, of course, in the number of people walking around with fake cheese wedges on their heads.

Walker claims that Wisconsin is “open for business,” but Forbes magazine ranks Wisconsin 31st for business; Minnesota is 9th. Additionally, Forbes places Minnesota 7th for economic climate and Wisconsin 27th. The median income for a Wisconsin family is $8,000 less per year than in Minnesota.

In 2014, Minnesota led the nation in economic confidence, according to Gallup.

The comparison shows once again that supply-side economics is snake oil: cutting taxes on the wealthy does not improve overall quality of life.

Tom Maertens served as National Security Council director for nonproliferation and homeland defense under presidents Bill Clinton and George W. Bush, and as deputy coordinator for counterterrorism in the State Department during and after 9/11.


Anonymous Anonymous said...

Well said, Tom. Now if only I could get my conservative friends and family to step out of their trickle-down bubble and apply a little sober reasoning..

12:55 PM  

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