Last month’s better-than-expected state revenue forecast allowed Gov. Tim Walz to revise a budget he originally proposed in January. But despite having more money, the DFL governor has kept the heart of his plan – higher taxes on wealthier Minnesotans and new programs, he said, will help those hardest hit by the economic fallout from COVID-19.
The revisions now include two new tax cuts that have already been approved by the state Senate – no state income tax on most of the money businesses received on loans the federal paycheck protection plan; and tax relief for unemployed residents who received the $ 600 weekly payment. Both were key provisions of the federal CARES law last spring.
Walz doesn’t go as far as giving P3 tax breaks as Republicans do. He would exempt the first $ 350,000 of income for canceled loan amounts, claiming that about 90% of loans received by Minnesota businesses are below that threshold and will qualify for full tax exemption. It also matches federal exemptions on COVID unemployment benefits, exempting up to $ 10,200 collected in 2020.
These tax cut recommendations reduce the net worth of Walz tax increases from $ 1.66 billion to $ 670 million. But the biggest tax increases remain. He still wants a new fifth tier income tax that would raise $ 403 million from married couples earning $ 1 million a year or single tax filers earning $ 500,000. Capital gains tax increases remain in his plan and raise $ 486 million. And although he slightly reduces a higher corporate income tax rate from 11.25% to 10.8%, the higher rate is still in his demand and would increase state revenues by 330 million. dollars.
The governor and his political allies are describing the tax plan as a reaction to the pandemic-induced recession, which has hit low-income residents hard but left many workers unharmed and saw some high-income earners increase their wealth. Walz’s tax strategy is similar to those used in other states, although Minnesota’s tax system is factored in one of the most progressive in the United States (More precisely: fifth plus in a ranking). If passed, these tax changes would likely improve the state’s ranking.
The governor no longer calls for an increase in the tax on cigarettes and snuff, but maintains an expanded tax on vaping in his proposal.
That Walz is holding on to his top income tax hikes despite a projected surplus – and the upcoming flow of federal funds from the American Rescue Plan – is not surprising; this was reported by his administration for weeks. Shortly after the February forecast was released, MMB State Commissioner Jim Schowalter told a Senate committee that the two pots of money are what budget officials call one-time funds. In other words, these are real dollars, but do not reflect a continuous improvement in the state’s tax revenues that could be relied on to pay for the spending increases it wants.
“As we budget and set obligations going forward, we need to think about it and take it into account,” Schowalter told the Senate Tax Committee last month. “Understanding the nature of money, the fact that it is more of a one-off than a structural sum, is a very important consideration.”
What was released on Thursday are revisions of a two-year budget plan – what Walz called his COVID-19 stimulus budget – first proposed in January. Most of this remains in the governor’s request. It adds expense in public education for general support and summer school, small business assistance, childcare scholarships, tuition assistance for job changers and others social and economic support linked to the pandemic.
The revised budget would spend $ 52.269 billion – $ 2.18 billion per month over two years. The current budget is $ 48.3 billion.
The improved revenue forecast means Walz can now keep the state’s rainy days count intact rather than spending $ 1 billion to balance his January spending plan. Not only does he not offer to draw on the account, but he suggests restoring the money used in 2019 to keep this year’s budget plan in balance. It would come to $ 2.243 billion.
The January budget and this revision are more starting points for negotiations than concrete plans. The GOP-controlled Senate has already laid a flag without new taxes and is pushing for spending cuts that are not in the Walz plan.
A final budget will come – perhaps – during end-of-session negotiations in May. The state must have an agreed balanced budget by the end of the state’s fiscal year on June 30.
The presentation of two budgets to lawmakers before even producing one is the result of wild swings in the state’s economic forecasts during the pandemic. Last May, the state predicted that the current two-year budget would put $ 2.42 billion in the hole on a two-year base budget of $ 48.3 billion.
That improved in November to a surplus of $ 641 million, with any deficit being pushed back into the 2021-2022 budget. State finances then got even better last month the current surplus rising to $ 940 million and no deficit projected for the next budget period.
Walz and his management and budget commissioner had planned to publish the revised budget during a press briefing. This was abandoned when the governor was potentially exposed to a staff member who tested positive for COVID-19. Instead, the new numbers came by press release.
“The people of Minnesota have risen to the challenges of the COVID-19 pandemic as they always do when faced with hardship – with courage and resilience,” Walz said in the statement. “But we know our students, working families and small businesses have been hit hardest by this pandemic. That’s why, with the recent good news that Minnesota is now projecting a positive budget balance, we recommend additional investments to support working families, ensure students catch up with their learning, and help small businesses stay afloat while stimulating economic recovery.
Unsurprisingly, the revised plan has been hailed by the LDF and their allies – and criticized by Republicans and business groups.
“This proposal stands in stark contrast to the budget targets proposed by Senate Republicans who are trying to hide their major cuts to education, public health and investments like broadband,” said Minority Leader Susan Kent in the Senate, DFL-Woodbury. “To truly rebuild a stronger Minnesota, we must invest in our communities statewide to address disparities and close statewide gaps to support all Minnesota, and the proposal to Governor’s revised budget recognizes this need. ”
What the Senate GOP released this week was not a budget, but a list of general state government spending areas and the dollar amounts to be spent in each. These too are starting points for negotiation and sometimes do not even have the support of GOP committee chairs. In total, these so-called targets are $ 51.9 billion, have no tax increases, and include a complete P3 tax waiver.
Minority House Leader Kurt Daudt R-Crown has targeted tax hikes and the less than full P3 loan exemption. “Taking money from struggling businesses is indefensible when the state government is overflowing with cash, ”Daudt said. “We have billions of dollars available to fully protect workers and businesses from unnecessary tax hikes, and to ensure the government does not take advantage of allowances meant to help the people of Minnesota.
Minnesota Speaker of the House Doug Loon said, “With billions of dollars in surpluses, billions in reserves and billions of dollars more in expected federal dollars, we shouldn’t be imposing increases and costs. additional – and permanent – to the people of Minnesota.
“Minnesota should join our neighboring states and fully comply with federal law to prevent the more than 100,000 small businesses that have benefited from this loan from suffering a tax impact to retain their employees during the worst economic recession in more than 70 years. years.”