The state’s budget deficit

President-elect Obama reportedly is going to keep the tax cuts on the wealthy around until they’re scheduled to expire in 2011 (We’ll find out more at 11 when he holds a news conference on the economy, which I’ll live blog here). But a Minnesota budget expert sees a tax increase on wealthy Minnesotans as a solution to an estimated $4 billion state budget deficit.

“The deficit we’re hearing about would be about 11 percent of the general fund,” says Nan Madden, director of the Minnesota Budget Project. That’s slightly less than the size of the deficit that greeted Gov. Tim Pawlenty when he took office in 2003. ()

Madden says lawmakers need to understand “that programs that help people get and keep jobs, and make ends meet, those things should not be cut. We shouldn’t pile on folks who are already suffering from the economic downturn. Second thing to understand is cutting state spending is a drag on the state’s economy. State spending largely goes to people’s salaries, to buying goods and services in Minnesota. So when we cut spending, that’s actually taking dollars out of the state economy.”

Madden says a targeted tax increase to people with high incomes won’t have a detrimental effect on the economy because “that’s money that people would save rather than money that would be spent on consumption.”

Are there enough wealthy people left in Minnesota? “The size of this problem means you can’t take anything completely off the table but we would argue we need a balanced approach. We can’t take revenue increases off the table. And when you have a budget deficit that’s 11% of the general fund, you can’t close it only through spending cuts.”

Madden expects some delays in payments to Minnesota school districts “and some things that are on the gimmicky side.” She says she hopes lawmakers take a long-term view of the state budget, using spending cuts and delayed payments as “a short term bridge.”

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