Capitol View: December 13, 2012 Archive

PoliGraph: Hann claim on fiscal cliff taxes is misleading

Posted at 12:55 PM on December 13, 2012 by Catharine Richert (1 Comments)
Filed under: PoliGraph

Editor's note: After publishing this story, State Economist Tom Stinson followed up to say that Sen. David Hann's overall job loss number of 115,000 is wrong.

Given Hann has his number wrong, and given that Hann answered a question about raising taxes on Minnesota's top 2 percent by pointing to the state budget forecast, which talks broadly about the impact of going over the fiscal cliff not the implications of a possible state tax increase on the wealthy, PoliGraph has downgraded its rating from accurate to misleading.

With the state still facing a $1.1 billion budget deficit, raising taxes was a big topic of discussion during a preview of the coming legislative session.

When asked about whether legislative Republicans would be willing to rethink a tax increase on the state's top 2 percent of earners, long a priority for Gov. Mark Dayton, incoming Senate Minority Leader David Hann, R-Eden Prairie, argued that increasing tax rates could lead to job losses.

To underscore his point, Hann pointed to the most recent state budget forecast.

"The things that we heard in the presentation of the budget forecast, there was some discussion about the impact of increasing tax rates at the federal level and the resulting loss in jobs in Minnesota," he said. "The projection was that over the next couple of years if those federal tax rates go up something on the order of 115,000 jobs would be lost in the state of Minnesota. In other words the state economist was making a very clear connection between raising tax rates at the federal level and loss of jobs."

Dayton responded by saying that there's nothing in the latest forecast that shows raising taxes on the state's wealthiest would mean job losses.

Hann is not too far off, but his statement requires context and clarifications.

The Evidence

Hann's response is a bit confusing because he's talking about the looming fiscal cliff, the simultaneous expiration of the Bush-era tax cuts and massive spending cuts set to kick-in at the beginning of 2013, not Dayton's interest in raising taxes on the state's wealthiest, which was how the initial question was framed.

Right now, Congress is trying to figure out ways to avoid the double fiscal whammy, which many economists fear could send the nation back into a recession.

The ongoing discussions in Washington complicated the latest Minnesota budget forecast. According to the forecast, federal tax increases and spending cuts could lead to 115,000 jobs lost in the state.

So, Hann has his number right. But his statement seems to imply that all these losses are the result of tax increases.

In fact, state economist Tom Stinson said Hann's interpretation of the report is not far off.

"The preponderance of the fiscal cliff is tax increases not spending cuts," Stinson explained.

The fiscal cliff will lead to job losses because both tax increases and spending cuts will reduce the amount of money individuals have to spend, Stinson explained.

"When they spend less, that means that there's less demand for goods and services provided. So hours are cut back, some people lose their jobs, and that spirals into less income again," he said. "It just starts a downward spiral."

Still, Stinson said that it's important to make two things clear:

First, the bulk of the federal tax increases will fall on middle-income earners, who will probably spend less as a result, a factor that would have a bigger impact on the economy than tax increases on higher-income earners, who would probably save less cash in the face of tax increases.

And though Hann chose his words carefully, Stinson underscores that the 115,000 job loss estimate assumes that "we go completely, Wile Coyote-style over the cliff and fall all the way to the bottom."

"It's not just would happen if the top-income individuals had to pay more in taxes," Stinson said. "I think that's the important point to be sure people get."

The Verdict

Though State Economist Tom Stinson makes clear that the employment estimate in the latest budget forecast would be the result of simultaneous tax increases and spending cuts, he says Hann is essentially correct: potential federal tax increases would have a more profound effect on Minnesota job losses. The forecast is silent on the impact of tax increases only on the wealthiest Americans.

SOURCES

Minnesota State Legislature, Legislative panel, Dec. 10, 2012

Minnesota Management and Budget, November 2012 Forecast

Interview, Tom Stinson, State Economist, Dec. 11, 2012

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