News Cut: December 1, 2008 Archive

Can a tax do two jobs at once?

Posted at 10:49 AM on December 1, 2008 by Bob Collins (9 Comments)
Filed under: Economy

I'm in no position to hold my own in an economic discussion with Robert J. Samuelson, The Newsweek and Washington Post columnist was one of Kerri Miller's guests in the first hour of Midmorning on Minnesota Public Radio today. But something he said about taxes this morning didn't make sense to me.

Kerri prodded Samuelson for an answer about an obvious shortfall in Social Security benefits for now-retiring baby boomers. "The tax increase that is required will have to be massive," he said. He might've also used the word "inevitable." He said the retirement age would have to be raised and benefits cut for wealthy retirees. Nothing much you haven't heard before.

"But Barack Obama wants to provide a middle class tax cut," Kerri pointed out. Samuelson responded that an incoming president ought to be able to enact the main part of his platform but opined that what he would do is raise the gas tax a penny a gallon each month for the next three years to help raise necessary funds.

OK so far, if that's what he wants to do. But then he added this:

"Plus, it would send a message to automakers to start making, and consumers to start buying more fuel-efficient vehicles."

Can a tax -- any tax -- be both a way to raise revenue and an incentive to change behavior? How?

Gov. Pawlenty proposed his cigarette tax (I refuse to call it a health impact fee) during the lean budget years of his first term. And he noted it would be an incentive for people to quit smoking. What would happen if half of the cigarette tax's mission was fulfilled? It would be unable to fulfill the other half.

It's not as though the state isn't trying to squeeze as much as possible out of the sale of cigarettes. It quietly raised the sales tax on distributors by a penny in August.

Cigarette taxes are now "a lousy way to fund your government," David Brunori, said last year in an Associated Press story predicting a drop in revenue in Minnesota and other states. He teaches tax policy at George Washington University.

True, it's a small slice of the overall budget pie here. But the 2007 projected $449 million cigarette taxes raised in Minnesota isn't much to sneeze at. And according to the February budget forecast, tax revenues from tobacco products, which pulled in $407 million in fiscal year 2006, are projected to raise $36 million less this year, with another $8 million drop next year. A statewide smoking ban also is a factor, of course. This week's forecast, from all accounts, may make those numbers look robust. The cigarette taxes are doing one job so well, it can't do the job for which it was originally intended.

Why wouldn't the same thing happen with an increase in the gasoline tax? Samuelson's plan -- I figure -- would cost each driver about $120 a year. Getting 5 miles-per-gallon more would neutralize the tax. Sure, it'd be a great way to push more fuel-efficient vehicles, but can it do that (which obviously leads to lower consumption of gasoline) and still be a solution to the revenue ills of the U.S. government?

I'll hang up and listen.

(Photo by Getty Images)

(9 Comments)

He told you so...

Posted at 11:55 AM on December 1, 2008 by Bob Collins (18 Comments)
Filed under: Economy

State economist Tom Stinson is probably too nice of a guy to say "I told you so" to Gov. Pawlenty. Besides, he's got his hands full finishing up what's reported to be a bleak Minnesota revenue forecast, which he'll deliver later this week.

But last February, Stinson said, "We're in a recession."

"Tom Stinson tends to be a bit on the pessimistic side of things, to put it charitably...I don't think it's helpful - unless it's clearly justified by the data - for people to get overly pessimistic or overly scare people, either," Gov. Tim Pawlenty said at the time.

Today, nine months later, the National Bureau of Economic Research has reached a conclusion that Stinson figured out nine months ago. The U.S. has been in a recession since December 2007.

(18 Comments)

The cure?

Posted at 4:24 PM on December 1, 2008 by Bob Collins (5 Comments)
Filed under: Economy

Could this nondescript piece of land be the answer to a moribund retail economy in downtown St. Paul? Maybe.

Lund's announced today it's going to build a supermarket here at the corner of 10th and Robert in downtown. It's on the site where the Penfield tower was going to be built -- a 30-story condo project that collapsed when the housing market did. Now, the Penfield is back. "The $88 million development also is expected to include an upscale apartment complex and a Hyatt Place Select Service hotel. Construction is slated to begin in the fall of 2009," according to a city news release today.

It's no secret that retail downtown has been a losing proposition, despite an increase in condo development.

"With a rising population and a lack of full-service supermarket options in downtown Saint Paul, we know there is a real need for a Lunds in this area," said Tres Lund, chairman and CEO of Lund Food Holdings. "We're eager to provide the residents and businesses in downtown Saint Paul with a selection of products and a level of service that will exceed their expectations."

Though the city has given its blessing, apparently there's no financing for the huge project yet. Construction is scheduled to begin next fall. But, huge signs still stand on the site announcing the Penfield opening in the fall of 2007.

(5 Comments)