Reprint courtesy of

October 11, 2004

'No New Taxes' Rhetoric Aside, Rep. Rebecca Otto

is the Real Fiscal Conservative in District 52B                 By Shawn Lawrence Otto

It’s amusing to see (in a letter published in the Gazette Oct. 8) Republican activist and Matt Dean supporter Wally Raleigh actually touting the removal of spending caps as a good thing.

It’s also interesting to see him try to juggle "no new taxes" and “educating our kids is of the highest priority” in the same sentence.
 

But when he starts criticizing Rep. Rebecca Otto, DFL-May Township, his letter veers way off base and becomes untrue on two counts. We offer the following points of rebuttal:
 

1. Mr. Raleigh said “the only budgetary suggestion Otto has made during this campaign is a job-killing tax increase on employers.”
Rep Otto has NEVER advocated for a “job-killing tax increase on employers,” but has instead backed closing a tax loophole that some businesses have abused by setting up shell foreign operating corporation subsidiaries (FOCs) to avoid paying the same tax rate as everyone else.
 

Gov. Tim Pawlenty himself has agreed that the loophole needs to be closed. Chief State Economist Tom Stinson has said that the loophole is costing the state “about $100 million a year in lost revenue,” which drives up other taxes. Closing the loophole as Rep. Otto and Gov. Pawlenty suggest will help avoid tax increases on employers and individuals, not the contrary.
 

As to whether this is a “job-killing tax increase,” Gov. Pawlenty’s own revenue commissioner, Dan Salomone, who is the immediate past president of the Minnesota Taxpayer’s Association, has said that closing this loophole would not be a tax increase. He was quoted in a Sunday, July 11, 2004 Pioneer Press article on the subject:

"If we fix a law and it causes a company that is abusing that provision to have to pay more … I don't think you call that a tax increase,’ Salomone said.”

These are the governor’s own advisors saying this, so it’s disingenuous for Mr. Raleigh to make the statements he has.
 

The FOC issue that Rep. Otto has raised has to do with certain businesses, mostly in the financial services industry. These businesses set up shell corporations in places like the Cayman Islands, wire their investment earnings there and back, and thereby avoid paying 80 percent of their state taxes.  

This is not an option that is available to all businesses — or any individuals — and is unfair. Further, it was never the intent of the law to begin with, as Commissioner Salomone’s comments indicate.  
 

Rep. Otto has advocated for hearings into this “leak in our revenue bucket” so that we can assess just how much this loophole is being utilized and how best to “make some common sense changes without harming the state’s business climate.” That seems eminently reasonable, and just what one would think a responsible legislator should do.
 

Those interested can listen to a WCCO show on the subject, playing on her Web site at www.rebeccaotto.us
 

Those interested in the broader debate over which brand of fiscal conservatism best represents the area — Rep. Otto's old-fashioned fiscal conservatism, the kind that favors using recurring revenues to pay for recurring expenses, or her opponent’s "no-new-taxes" variety, which seems to favor borrowing, draining state assets, and shifting taxation onto school districts and local units of government to pay for recurring expenses — should also go to www.rebeccaotto.us and read Star Tribune editorial writer Lori Sturdevant’s piece, “House race opens door to basic questions of fiscal policy.”
 

2. Mr. Raleigh says the FOC issue is “the only budgetary suggestion Otto has made during this campaign.”
In fact, Rep. Otto’s campaign has been almost entirely focused on the budget and on the state’s recurring budget deficit, which is now projected for next year at $1.1 billion, although some economists are now saying it could be much higher.
 

The state's 2003 budget, which Rep Otto’s opponent suggested he “stood shoulder to shoulder with,” did not solve the recurring deficit. But it did result in the laying off of over 2000 teachers statewide, and a reduction in school funding for the next three years running and for the first time in Minnesota history.  
 

As a true fiscal conservative, versus a credit card spender, Rep. Otto says this kind of deficit spending and lack of long-term fiscal planning is irresponsible.
 

She says we need to structurally balance the budget with generally accepted accounting measures and not shifts or gimmicks that use one-time money to fund recurring, yearly expenses — like spending down the $1.1 billion tobacco fund or borrowing for roads.  
 

Finally, Rep Otto’s groundbreaking work on the budget all began after she opposed the recent smoke-and-mirrors budgets of both parties that included inflation in revenue forecasts but not expense forecasts, which led in part to the current fix we are in with yet another deficit.
 

Even Gov. Pawlenty's own finance commissioner, Peggy Ingison, has since come to support Rep. Otto's position on the issue, calling the omission of inflation in expense projections "not very fiscally responsible."
 

Mr Raleigh’s assertions notwithstanding, this is exactly the kind of work we would expect of a conscientious representative. Gov. Pawlenty and his revenue and finance commissioners aren’t agreeing with Rep Otto because it’s politically comfortable.  They’re agreeing with her because she’s right.
 

Movie writer Shawn Lawrence Otto is Rep Rebecca Otto's husband and campaign manager.