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What did the legislative session mean for Minnesota’s economy?

The legislative session in Saint Paul has drawn to a close. What did Minnesota’s policymakers do and not do and how would this impact the state’s economy?

The Grand Forks Herald produced a useful run down of the major bits of legislation. Below are some of them with comments.

Gas tax increase: Minnesota drivers won’t pay 20 cents more per gallon at the pump. The Republican-controlled Senate beat back the gas tax increase that Walz and House Democrats proposed.

Good news. We at the Center have campaigned hard against hiking the gas tax. At a time when the state’s government revenues are are near record historic highs and with a surplus of $1 billion forecast for the next biennium, it made no sense to hike one of the few taxes where Minnesota isn’t in the top ten nationally.

Other taxes and fees: Drivers also won’t have to pay higher license plate tab fees or motor vehicle sales taxes, and metro residents were spared a sales tax increase to pay for transit improvements. 

Good news, for the same reasons as above.

Roads and bridges: The state will have an additional $275 million to spend on roads and bridges over the next two years due to growth in existing state taxes. 

Good news. Nobody denies that the state’s infrastructure could use some fixing up, the question was always how to fund it. A growing economy raises tax revenues without raising tax rates.

MNLARS: The years-long saga for the computer system for vehicle titles and tabs known as MNLARS is hardly over. But lawmakers and Walz made some major decisions about its future.

It will be scrapped and replaced with another system developed in the private market. That system will likely be based on one used in other states.

It’s unclear what that will cost, but the two-year budget includes $55 million; a commission estimated a $60.5 million price tag over 26 months.

The budget also includes $13 million for license center operators who lost money as a result of problems with MNALRS.

Bad news. The state government is going to spend a whole lot more of your money to fix a problem that has already cost a whole lot of your money. This whole sorry saga illustrates once again that government doesn’t spend your money as well as you spend it yourself.

Opioid crisis: On the last day of the regular legislative session, lawmakers agreed to raise fees on drugmakers and invest the money into addiction treatment and prevention services. Walz signed the bill into law on Wednesday.

The state will now collect about $20 million per year from registration fees imposed on opioid manufacturers and distributors. Much of the proceeds will fund prevention strategies to reduce opioid deaths and overdoses. The other funds will reimburse Minnesota counties for child protection costs related to families harmed by the opioid epidemic.

Bad news. The opioid crisis is clearly a major problem, but the cures must actually tackles the causes. Is the opioid crisis really caused by medical taxes being too low? Besides, remember the incidence of taxation – who actually pay a tax. Drug companies won’t pay this tax, they will simply pass it on to consumers.

Energy policy: Lawmakers were unable to reach a deal on any significant changes to energy policies. A Walz plan to rid the state of fossil-fuel electricity by 2050 won’t reach his desk. Democrats’ hopes to expand solar gardens — and Republicans’ hopes to rein some in — both failed to emerge. Similarly, Democratic notions of encouraging electric vehicles and Republican ideas to hike taxes on those same vehicles also ran out of gas.

Good news. A study we released in March found that increasing Minnesota’s renewable energy mandate to 50% by 2030 would cost the state $80.1 billion in meeting this standard and maintaining a reliable electric grid through 2050. This would increase electricity prices by more than 40% and cause the electric bill for the average Minnesota household to increase by $375 per year. And for what? Greenhouse gas emissions from Minnesota electric utilities represent 0.00075 of global carbon dioxide emissions. A completely ‘carbon free’ Minnesota would avert only 0.00073 degrees C of future warming by 2100. This amount is too small to be accurately measured with even the most sophisticated scientific equipment.

Tax cuts: Under the tax deal, Minnesota’s second income tax tier will drop from 7.05% to 6.85%. It impacts couples earnings between $37,850 and $150,380 and individuals earnings between $25,890 and $85,060.

That cut will cost the state about $360 million over the next two years. The plan also expands access to the working family tax credit.

There’s also a reduction of state property taxes for businesses that will cost about $50 million a year.

No new revenue: Democrats had hoped to use the tax conformity bill to raise new revenues to fund priorities like schools, health care and community improvements. The money would have come from higher taxes on corporations and the wealthy.

But Republicans did not want to raise rates and wanted to return any new revenue from the tax bill back to taxpayers. They opposed the Democrats’ proposal to raise roughly $1 billion from taxing corporations’ profits brought back to the U.S. from overseas.

The tax bill the two parties settled on raises no new money for the general fund and is what lawmakers call “revenue neutral.”

Good news. Minnesotans are some of the most heavily taxed people in America, and we have long campaigned for state politicians to leave them with more of their hard earned money. And, no, these high taxes are not what makes Minnesota great. This tax cut is a small step, but one in the right direction. As regards corporation tax, it is already too high and Minnesota and corporations don’t pay it anyway.

Preemption left out: Republicans in the Senate had hoped to wipe out $15 per hour minimum wage ordinances in St. Paul and Minneapolis with a retroactive preemption bill. It’s been a big priority for the state’s chambers of commerce whose leaders argue city-specific rules on pay and benefits are bad for the economy. Democrats fought off the change, saying cities often lead the way in policy changes that improve residents’ lives.

The preemption change was not included in the Legislature’s jobs budget.

Good news. Minimum wages are bad public policy, but, if the people of Minneapolis and Saint Paul want to elect politicians who push such harmful public policies, in the full knowledge that these policies are harmful, they have that right.

Provider tax: One of the top issues facing lawmakers was what to do with a 2% tax on health care providers that was scheduled to sunset at the end of the year. The tax raises about $700 million a year for the Health Care Access Fund that is used for programs to keep care affordable and accessible.

The budget deal keeps the tax but lowers the rate to 1.8%. There is no sunset provision, so the tax will not expire.

Bad news. Again, remember tax incidence. Just because a tax is called a ‘medical provider tax’ it doesn’t mean that medical providers will bear the burden of it. They will pass it on to their customers. Does it really make sense to tax people for getting ill?

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

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