Tim Pawlenty’s main claim to the mantle of GOP vice presidential candidate, when all is said and done, is probably his loyalty to the John McCain campaign in its dark hours of 2007 and McCain’s much-remarked personal affection for Minnesota’s Mr. Nice Guy. Pawlenty’s strategic value to the campaign is another question entirely, but to the extent TP has credentials to bruit around, they consist mainly of his bona fides as an evangelical Christian (previous MnIndy report) and as a fiscal hawk who has held the line on taxes in his state.

On the latter count, voters across the country might be interested to know that no one has been more influential than Pawlenty in reversing Minnesota’s longstanding tradition of using progressive taxes to make prudent but significant investments in our social and physical infrastructure — education, transportation, health care and the environment.

After decades of outperforming the national economy and serving as a regional engine for job creation in the upper Midwest, Minnesota’s economic performance has slipped in recent years relative to other states. In June 2007, Minnesota’s unemployment rate was higher than the national average for the first time in 31 years, and while the most recent figure a year later has the state at 5.3 percent versus 5.5 nationally, the days when we were always substantially lower than the nation (as neighboring Wisconsin, with 4.6 percent unemployment, is now) appear to be over.

Were a McCain-Pawlenty ticket to succeed in November and send the governor to Washington, historians reviewing his gubernatorial legacy would make prominent mention of his “solving” a $4.3 billion budget deficit without raising state taxes during the 2003 legislative session. (Perhaps only the bridge collapse in August 2007 is more noteworthy.) In hindsight, we know that the massive budgetary bloodletting that occurred in 2003 dramatically altered the political character and philosophy of government in Minnesota, making it necessarily less forward-looking and more reactive in serving the needs of its citizenry. When we look more carefully at the context in which he acted, Pawlenty’s steadfast decision not to raise state taxes becomes an especially bold and radical gambit.

There were some very obvious reasons why Minnesota was staring at more than $4 billion worth of red ink in 2003. Four years earlier, with the state’s general fund enjoying a $4 billion surplus, the Minnesota Legislature (where Pawlenty was then House Majority Leader while Jesse Ventura was governor) passed a biennial budget that contained more than $2.7 billion worth of tax relief. It was more than twice as large, per capita, as any other state tax cut in the nation. The very next year, in a non-budget session, legislators returned hundreds of millions of dollars through an income tax cut and reduced vehicle license fees. And the year after that, their 2002-03 biennial budget contained the so-called “Big Fix,” which drastically lowered property taxes (targeting most of the relief to high-priced homes, businesses and agricultural land), rebated $700 million worth of sales taxes back to citizens, and had the state replace local units of government as the source of $1 billion worth of education spending.

Got that? Over a three-year period, liberal, progressive Minnesota disgorged billions of dollars in excess revenue back to its citizens — far more money, per capita, than any other state in the union. During this same period, Majority Leader Pawlenty and other legislators were simultaneously reducing the state’s ability to bring in money and increasing the state’s obligation to maintain the high standard of our education system.

How? When the dot-com bubble burst in the waning days of the Ventura Administration, the state’s general fund was thus uniquely vulnerable. Ventura tried to minimize the looming economic carnage by bravely offering a please-nobody package of tax increases and spending cuts in a non-budget year. But Pawlenty and the Majority Leader in the Senate, DFL-er Roger Moe, were both running for governor that November, and deliberately postponed any nasty fiscal reckoning until after the election.

Pawlenty and Moe were so intent on papering over the red ink that they passed a bill during that 2002 session that continues to shame state economists to this day: When determining budgets, Minnesota counts the dollars inflation adds to the state coffers, but ignores those same adjustments when calibrating the cost of government services.

By the time Pawlenty took his first oath for the governor’s office, the deficit was $4.3 billion. Yet in order to capture his party’s endorsement over a more conservative challenger, Brian Sullivan, Pawlenty had signed a pledge not to raise taxes. As billions of dollars worth of state programs were slashed, most of them in health and human services, the governor stood fast on his pledge.

To dramatize just how radical this no-taxes stance was, every former Minnesota governor alive at the time, including three Republicans (Elmer Anderson, Al Quie, and Arne Carlson), a DFL-er (Wendell Anderson) and an Independent (Ventura), harshly criticized his position. Specifically, they mentioned taxing wealthier income-earners, who had received a disproportionate amount of the tax relief. A showdown seemed inevitable when the DFL Senate passed a $1.2 billion tax increase that would have restored a fraction of the previous cuts and rebates. But John Hottinger, who had replaced Moe as Senate Majority Leader, abruptly caved in to all of Pawlenty’s demands, even offering to supply three DFL votes to ensure the governor’s agenda was enacted. (Only later would Hottinger reveal that he was suffering from acute depression at the time.)

The fallout from the 2003 budget bloodletting was a structural tilt in Minnesota state government that remains today, in large part because Pawlenty has tenaciously rebuffed any income tax increases during his six years in office.

Without sufficient money in the general fund, the “Big Fix” plan for the state to replace local property taxes as the primary source of education funding has been completely razed. According to figures compiled by the progressive think tank Minnesota2020, the per pupil state aid for Minnesota’s children in the 2008-09 biennium that began on July 1 is $8,419. After adjusting for inflation, this is 0.8 percent less than the aid in fiscal year 2007-08 and a whopping 13.4 percent reduction in real dollars from levels in the 2002-03 biennium, before Pawlenty became governor.

Property taxes have taken up some of this slack. Using “price of government” figures (again from Minnesota2020), while state aid for education has declined $1287 per pupil in constant 2008-09 dollars compared to 2002-03, property tax revenue for education has increased by $752 per pupil over the same period. (Another $95 per pupil has been recouped through various fees and non-tax revenue.)

Pawlenty’s disinvestment in real-dollar state aid to education is at odds with a longstanding Minnesota formula for economic growth. Five years ago, St. Olaf economics professor Terry Fitzgerald published an analysis for the Federal Reserve Bank entitled “Business Cycles and Long Term Growth: Lessons From Minnesota.” It is an in-depth look at how Minnesota managed to increase its per capita income from 14 percent below the national average in 1929 to 8 percent above it in 2001.

After crunching a lot of numbers and parsing through the history, Fitzgerald concluded: “Obviously there is an important interplay between an education system that supplies educated people and a state economy with enough jobs that demand those educational skills.”

State economist Tom Stinson concurs. Citing similar positive economic news over the last quarter of the 20th Century, Stinson told me late last year that “the reason that [economic growth] occurred was because far-sighted public and private sector leaders figured out how to manage the challenge that was posed by the baby boom. What they decided is they were going to invest in the education of that generation. And that paid off big time in Minnesota. Now it seems like an obvious decision to have made, but if it was, other states would have done it too and we wouldn’t have done as well.”

But now the dynamics of schools spending are working against Minnesota’s economy, where a relative lack of investment in education is occurring at the same time that there is a relative paucity of new jobs being created. Although a modest surge in job growth in three of the last four months has enabled Minnesota to surpass the national average in the first half of 2008, the state still lags well behind the country in its job creation rate since Pawlenty took office. For 18 consecutive months stretching from April 2006 to October 2007, Minnesota’s rate of job growth never once bested the national average. And the state’s rate of personal income was dead-last in the nation for the third quarter of 2007.

Other economists, including Toby Madden at the Federal Reserve Bank of Minneapolis, claim that Minnesota’s job creation rate has actually been quite strong, given its lack of available workers. It is the state’s older demographics, which have resulted in fewer people of prime working age, that is to blame for the relatively sluggish job growth. But here again, even if this is true, Pawlenty’s failure to invest in both at-risk youth and higher education only exacerbates the problem.

Stinson notes that there are two ways to help relieve the employment shortage wrought by demographics: Recruiting highly skilled students and workers to our colleges and universities and educating migrants who come to this state seeking a better life for themselves and their children. As for college recruitment and retention, “I think we have to seriously think about tuition policy at our four-year institutions as well as graduate school education tuition policies,” he states. “To the extent that we need to be competitive, we need to think about how we keep Minnesota-raised students in Minnesota and how do we draw students from other states. Certainly tuition policy would be one of the things to think about.”

But rather than the tuition subsidies Stinson suggests, Pawlenty has sacrificed aid to higher education on his no-new-taxes altar, creating multiple years of double-digit tuition increases. In 2001, the average annual cost of tuition and fees to attend one of the schools in the MnSCU system was $2993. Now it is over $4000. (As someone who frequently cites his “up from the bootstraps” college education in Minnesota, Pawlenty seems hypocritical as well as short-sighted in his neglect of higher education.)

Meanwhile, the education of new migrants bumps up against Minnesota’s achievement gap. “The fastest growing part of our working-age population — young Hispanics and Afro-Americans, young American Indians and young Asians — don’t have graduation rates that are anywhere near our current overall rate,” Stinson warns. Outside the classroom, the parents and older siblings of those migrants likewise face a hostile climate. Part of this is the tone set by Pawlenty’s immigrant bashing (on everything from driver license codes to denial of state supported health insurance), which belies his affable reputation.

But part of it is likewise a function of the more regressive tax system his policies have imposed upon Minnesotans. Pawlenty’s abject refusal to raise state income taxes — the most progressive form of taxation we have — by itself contributes to the regressiveness of the system. But his reliance on user fees and property taxes to supplement big-ticket budget lines like transportation and indigent health care as well as education only aggravates that regressiveness. The governor may be endlessly fond of citing his blue collar roots, but his economic policies stick it to the middle class while providing a huge windfall for the wealthiest Minnesotans.

Every couple of years the Minnesota Department of Revenue compiles a “tax incidence study,” which carves the state’s population into ten statistical segments (or deciles) according to how much they earn per year, then calibrates the entire state tax burden by adding up all forms of taxes (income, property, business, sales) but not fees.

The contrast between 2002, the year before Pawlenty’s budgetary scorched earth session, and revenue department estimates of the burden for 2009 is illuminating. For example, if your earnings put you among the second-poorest decile in the state, your tax burden has risen from 10.5 percent of your income in 2002 to 11.3 in 2004 to an estimated 11.4 in 2009. If you are in the fifth decile, where much of the “middle class” presumably lives, your burden has risen from 11.4 percent in 2002 to 11.9 in 2004 and an estimated 12.6 in 2009.

If you are rich enough to land in the top half of the highest decile of income, however — the top five percent of all Minnesota wage-earners — your tax burden of 10.5 percent in 2002 stayed the same in 2004 and is estimated to go down to 10.4 in 2009.

Consider how much asking our wealthiest Minnesotans to pay their fair share would go in helping to remedy our current budget woes. Using the Department of Revenue’s 2009 estimates, each decile will contain 247, 593 people. The people in the top decile will earn at least $129,880 per year and will pay 10.8 percent of that in state taxes. If we asked those people to instead pay their fair share, the average burden borne by all Minnesotans — which works out to 11.7 percent, or nearly 1 percent less of their income than Minnesotans earning between $35,000 and $45,000 will be paying — it would generate another $671 million in revenues.

The DFL-majority state Senate has passed tax bills doing just that, only to have them vetoed by Pawlenty, who called the legislation “profoundly stupid” and “a job killer,” because it would create a disincentive for those rich people to live and work in Minnesota.

Meanwhile, Pawlenty tries to figure out ways to keep this economy together with baling wire until his long record of fiscal austerity provides him with the pretext to ascend to a national stage. He has castigated working Minnesotans uninsured by their employers for using state-subsidized MinnesotaCare, calling it “welfare health care,” even as he restricts the eligibility requirements and raids the dedicated fund (some of it premiums paid by MnCare enrollees) of hundreds of millions of dollars to balance general fund deficits. He announced the formulation of grandiose blue-ribbon commissions to determine more efficient and effective ways of delivering education and health care services, only to ignore their inevitable recommendation for some sort of tax increase. He has whipped out a huge red VETO stamp and affixed it to a bipartisan transportation bill passed by the legislature, sneering, “How dumb can they be?” for thinking he’d let it become law. Twenty seven months later, the I-35 bridge collapsed. Then there is the hopeful happy talk, like his desire to provide all Minnesota children with health insurance, or compromise more in the spirit of bipartisanship, or create thousands of “green jobs” to combat global warming. Aside from his admirable effort to eradicate homelessness, talk is usually as far as it goes.

But we’re coming to the finish line of this carefully calibrated vice presidential sweepstakes, and by most accounts, Tim Pawlenty will be there, leaning forward at the wire. Just in time, too. The structural deficiencies wrought by the 2003 bloodletting have never been repaired and the biennial budget deliberations promise to be ugly next session, with an estimated general fund deficit of more than $2 billion in the offing, and that’s based on an inflation calculus that assumes oil will be only $70 a barrel.

Time for Tim Pawlenty to host one last party and then head out on the hustings to preach the gospel of fiscal discipline — knowing all the while that if he ever makes it to Washington, as a vice president or later in some other capacity, they let you run a tab there.

Related: Hear Robson discuss this story in depth on Mark Heaney’s radio show