Real World Economics: Structural or cyclical in budget debates – St. Paul Pioneer Press

by | Nov 13, 2022 | Financial

Edward LottermanThe election is over. Little has changed in terms of the correlation of political power in our nation and in Minnesota. The 2024 campaigns are next, but in the meantime, there are basic economic problems that need addressing. And this goes deeper than inflation.
We would be better off if more elected officials — and citizens — understood key ideas from introductory econ. These are not esoteric theories or complex calculations, just terms that embody important issues influencing collective decision making.
One is central to the biggest issue that will face the new Minnesota Legislature: the very large state budget surplus, forecasted at some $9 billion back in February, and which will have accumulated more before we face the next biennium. What should we do with it?
Alternatives are pretty clear. We can cut taxes, give a one-time taxpayer rebate, or spend it on short- or long-term initiatives. In theory, we could just salt all or much of it away against future exigencies.
The problem is an old one. Due to the way we Minnesotans have structured our sales and income taxes, revenues vary highly with the tides of the general economy. Ditto for our extensive social safety net. On both taxing and spending, Minnesota policies amplify swings in the national and state economies. So we yoyo between feast and famine, wrangling over surpluses in …

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