Who Should Pay for the State’s Budget Deficit?
Julianne Ortman is in her second term as a member of the Minnesota State Senate (R-Chanhassen). She has been a member of the tax committee for seven years; this is her third year as the ranking minority member.
Just 4 weeks to go this ses-sion, and the state’s budget gap continues to grow: tax revenues dropped another $46 million in February and March (2.1% less than antici-pated in our previous dismal forecast). So how should we balance the budget, and who should pay?In my view we should put the residents’ budgets ahead of state government’s. We should do no harm to families and businesses already facing near-desperate
nancial cir-cumstances. We should cut state government budgets, use one-time shifts of edu-cation reserves, and borrow against the tobacco settle-ment payments just as the Governor suggests. But here’s where my view di
ers, and falls somewhere in the
scal middle. We can and should raise some revenues to make targeted tax reductions that will help to stimulate the state’s economy. For that reason, I proposed a tax increase this year; we should change our tax code to charge a tax on all lending institutions and other busi-nesses that extend credit to Minnesotans and charge an APR interest rate in excess of 15%. Lenders and others may still charge whatever interest rate they would like. Those that charge less than 15% interest will be una
ected. On those transactions where they charge more than 15% they should pay a tax of 30% on that portion of the interest that exceeds15%. If, as a by-product, lenders reduce rates or reform lending practices, then so much the better. But let’s be honest, 15% should be more than enough interest in an economy when banks can borrow at the fed-eral funds rate (0.25%), and the prime lending rate hovers at 3%. Charging 15% interest on funds obtained at 0.25% yields a stratospheric 6,000% rate of return! If they charge more than 15%, then these pro
t margins should be taxed to help pay the societal costs of predatory and usu-rious lending: foreclosures, credit card judgments (creat-ing overwhelming burdens in our courts and county o
c-es), bank and insurance com-pany bail-outs (to be charged back to our children), and the State’s burden in providing the safety net for folks who agreed to loans that lenders recklessly failed to qualify, or loans intentionally priced for a high risk of default. As a State we face record lev-els of unemployed Minneso-tans, with lost health insur-ance bene
ts and pensions, enormous costs to the jus-tice system, and businesses
By Minnesota State Senator Julianne Ortman