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Minnesota’s government is forecast to take $1.5 billion more from the state’s taxpayers than it says it needs. What should it do with that money?

Yesterday, Minnesota Management and Budget released its latest Budget and Economic Forecast. The big news was that, thanks to lower projected spending and higher projected revenues, the state is forecast to have a $1.5 billion surplus for the next two-year budget period (biennium).

As WDIO reports,

The agency projects that the state will have $720 million to roll over into the next budget, and it predicts an additional $824 million surplus for the 2020-2021 budget for a total of $1.54 billion. And it says the state’s budget reserve now totals $2 billion.

Outgoing Gov. Dayton was quick to pat himself on the back, saying that the numbers “show a remarkable recovery from the financial shambles in which I took office eight years ago”. Not all his fellow Democrats got this memo, however. As the Pioneer Press reported,

the forecast does not account for inflation — the inevitable rises in the cost of just about everything — and inflation is projected to amount to nearly $1.2 billion on the state’s anticipated spending.

As a result, incoming House Speaker Melissa Hortman, DFL-Brooklyn Park, argued, “The real surplus is $382 million.”

Not so remarkable.

Its only a forecast, you might think. Indeed, but politicians are rarely wary of spending money they don’t have. And, so, the big question for Minnesota’s legislators in the upcoming session is ‘What to do with all this money?’

Some caution is called for. These are just forecasts, after all, and there are a number of downside risks in the projection. House Speaker-designate Melissa Hortman, D-Brooklyn Park, said “We cannot go into session looking at lots of (new) spending and tax cuts”. Confusingly, she also seemed to support incoming Governor Walz’s proposed gas tax hike, saying

“Governor-elect Walz definitely ran on that and had a conversation with Minnesotans about that topic and he believes it’s a mandate of his election and it’s a fair discussion for us to have”

Given Minnesota’s high taxes, it seems a bit of a stretch to say that there is no room for rates to be cut. But, at the least, this forecast should kill stone dead any notion that tax increases are called for. Department of Revenue data shows that, in real terms, Minnesota’s Total State Tax Collections have risen by 47.5% since 2010. Add this projected surplus, and it is simply unbelievable that the state government cannot find the funds to maintain a core function like roads without tapping the taxpayers up again.

The economist Milton Friedman once said “I am favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible.” Let us hope that the reverse doesn’t prove to be true for Minnesota’s legislators.

John Phelan is an economist at the Center of the American Experiment. 

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