In State of the State, Pawlenty hopes for job growth, but turns his back on most effective measures

Yesterday, Governor Pawlenty gave his State of the State speech (available as text, podcast, streaming audio or video at his web site.)

The state is facing a big budget deficit because we are in a really tough economy. So let’s take a look at how some of the initiatives mentioned in the Governor’s State of the State would impact the economy…and contrast that with what Mark Zandi, chief economist at Moody’s, finds will most effectively stimulate the economy (note that Zandi was an advisor to John McCain during the campaign).

  • Pawlenty. The Governor says job creation is one of his top priorities. He did not name any direct investments in job creation, but rather a set of business tax cuts including cutting the corporate income tax in half, tax credits and a capital gains exemption for investments in small business, a refundable tax credit for small business owners, faster depreciation, and more. These tax cuts would have to be paid for through greater spending cuts elsewhere.
  • Zandi. But the research shows tax cuts are the least successful means of stimulating the economy. Accelerated depreciation would deliver $0.27 in economic activity for each $1 in government revenues forgone, and a corporate tax cut would generate $0.30 in economic activity. In contrast, infrastructure spending, in which the government more directly invests in jobs and purchases of goods and services, shows a return of $1.59.
  • Pawlenty. The Governor noted the growth in the health and human services budget (remember – the increased cost of health care is occurring in both public and private systems, it is not anything unique to state programs). He’ll propose significant cuts in this area, only protecting “current health care eligibility for children.”
  • Zandi. Those policies that help low- and moderate-income people sustain their incomes during tough times have the greatest bang for the buck, delivering more than $1 of economic activity for each $1 of government money spent on them. (My editorial comment: cutting adults off of health care is not a great way to help Minnesota workers to make ends meet.)
  • Pawlenty. A wage freeze for state employees for two years, and requiring a wage freeze for any Minnesota government entity that accepts state money.
  • Zandi. Cuts in state and local government spending are a real concern, and can be a substantial drag on the economy. Zandi found that federal aid to the states to help them maintain their payrolls and continue to fund programs would result in $1.36 in economic activity for each $1 spent.

But you don’t need to be an economist to understand the problem. Pawlenty hopes to create jobs through tax cuts for businesses. In the meantime, he would plan to slash spending on local government and health and human services which we know will lead to the loss of already existing jobs. Common sense, as well as econometrics, suggests the most effective way to help our economy is to spend money wisely rather than cut taxes rashly.

-Nan Madden

About Nan Madden

Nan Madden is director of the Minnesota Budget Project.
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2 Responses to In State of the State, Pawlenty hopes for job growth, but turns his back on most effective measures

  1. Anni Simons, Minnesota Consortium For Citizens with Disabilities says:

    We would like to further expand on the topic of Pawlenty’s potential cuts to health and human services at a time when he prioritizes job growth. The health and human services budget pays for, among many other things, services for individuals with disabilities and older Minnesotans. Because Medicaid is the source of funding for these services, Minnesota receives $1 of federal match for every $1 the state spends. Most of these Medicaid funds for services for individuals with disabilities and older Minnesotans are used to hire staff to provide assistance and services. Cutting funding for these Medicaid programs is turning away federal funds that are used to pay for jobs for Minnesotans in this troubled economy. The health and human services budget affects our state economy in many ways, including paying for Minnesota jobs with a dollar for dollar federal match. Is this the time to cut health and human services funding and turn away federal dollars which provide both needed services to vulnerable Minnesotans as well as needed jobs for Minnesota residents?

  2. Mike Madden says:

    Your health care comment is right on! Being recently retired, I struggled with finding a cost effective replacement for my health care benefit from my employer. I know of other retirees who are struggling with the cost of having to obtain our own insurance. If you lose your job and lose your health insurance benefits, you now need to cover the health risk. (1) Care costs are discounted for people in health care plans. Paying premiums gives you access to the discounted [negotiated] rates. (2) Paying premiums isn’t the whole deal as you still have the deductable to satisfy. For example, it you pay $300 monthly and have a $5000 deductable, you’re paying $8600 BEFORE you start to get benefits, other than the in-plan discounts. My research says that you can play games with deductables and premiums, but you are still talking several thousand dollars here. (3) No one can really afford to get sick or incur substantial medical expenses. If you “protect” yourself by escrowing the deductables, that’s $5000 you don’t have to spend.

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