High tax rates ≠ high revenues
Lower tax rates incentivize economic activity and therefore expand the tax base. High tax rates do the opposite
Good News/Bad News in Budget Forecast
The state released the February budget forecast Friday, setting the stage for negotiations on the next two-year budget. The good news? The forecast predicts a $3 billion swing in revenue from a $1.3 billion deficit to a $1.6 billion surplus. The bad news? The surplus takes away any incentive for state leaders to reform government and hold down spending. New programs will likely be approved, adding to our $50 billion biennial budget.
And although it appears the Minnesota economy is very resilient and capable of producing more revenue, each time state government grows, we lose a little more freedom. Gov. Walz’s emergency orders during the pandemic provided a case study of bigger government leading to less freedom.
Republicans and others immediately called on Gov. Walz to back away from his proposed tax increases, since they no longer seem necessary in light of the surplus. He refused, claiming to do so would be negotiating against himself.
Before the forecast announcement, the Senate Tax Committee took testimony on the Walz tax plan and our economist Martha Njolomole testified in the hearing. She encouraged Senators to read our recent state budget report and pointed out that GDP growth produces more revenue to the state than tax increases.
Walz had some interesting quotes during his press conference after the budget announcement. The governor chooses his words carefully and strategically used the press to stake out his position in the budget poker game.
The first question from the press was if he would take any of his tax increases off the table:
“Every time I propose something, I always come back and add to it. I’m open to discussing things with people. I’m open to compromising with people.”
But after initially signaling he was open to it, he quickly added conditions:
“I would assume the same question would be asked of the GOP Senate – are you taking your cuts off to quit cutting epidemiologists at the Department of Health in the middle of the pandemic.”
Walz never misses an opportunity to take the cheap political shot at Senate Republicans. The epidemiologist remark is likely a reference to the GOP proposal to cut 5% from every state agency. Walz uses the logic that everything, even epidemiologists in a pandemic, would be vulnerable to that cut. Of course, his Health Commissioner would have to choose that as part of a 5% budget cut, so it’s a cynical argument at best. No one in the press bothered to follow up and ask what he meant (they never do).
Next we get some intelligence on what Walz thinks is important:
“I need to hear this from the other side. You come and say it’s a line in the sand and nope, that’s it. I appreciate strong positions – you feel morally and philosophically wedded to something, but what Minnesotans need to see us do is – they need to make sure the roads are getting fixed, they need make sure we’re getting the vaccines and those types of things, continuing to do testing, we’re educating our children.”
Part of the strategy is to characterize his opponents as political animals, using phrases like “line in the sand” and “morally and philosophically wedded.” Republicans think political, while Walz looks out for the greater good – his position is never political. Here’s more:
“If you’re not willing to compromise, you shut everything down. And that’s not the way this is supposed to work. I do worry that the all or nothing, demonize the other side, they are the enemy, they don’t agree with anything we do, and I’ve got to fight this to the death cause otherwise I’m gonna have to face a voter constituency in my base that ask me why did you compromise with the other side?”
Mark this quote down as the first leader at the Capitol to use the term “shut down.” Walz is already setting up Republicans as unwilling to compromise and willing to shut down the government if they don’t get their way. Again, the implication is that Republicans have to cater to their base, but Walz is righteous and out for the greater good. The reality is Walz’s tax increases and education spending proposals definitely cater to his liberal base.
One more outrageous quote:
“I still remind people that at this point of being governor, I have not raised taxes. Ever.”
We’ve written about this lie before – the 2019 budget was balanced by putting in place a 1.8% provider tax on every medical and dental transaction. The tax was sunset by law and had to be voted (and signed) back into law. It was a tax increase. Again, no one in the Capitol press asked a follow up question. Sigh.
This piece originally appeared in our Capitol Watch newsletter. Click here to receive the weekly Capitol Watch newsletter.