Capitol Watch: New Walz budget still raises taxes

Tax Stubbornness

Gov. Tim Walz released a new state budget plan this week, recognizing the updated forecast that changed a $1.3 billion deficit into a $1.6 billion surplus. Despite the economic turnaround, Walz stubbornly refused to let go of his tax increases on individuals and businesses. Thanks to an aggressive advertising campaign from American Experiment, he did back off on most of the other tax increases in his original proposal.

Walz will have to announce one more budget plan that recognizes the $4.6 billion coming from the latest federal legislation dealing with COVID-19 recovery. We wrote last week that states might not be able to use this federal money to cut taxes but thankfully the U.S. Treasury Department has since issued guidance that tax cuts will be allowed as long as they rely on state funding.

Everyone knows the Walz tax increases will not survive the end-of-session budget negotiations but that’s precisely why he’s keeping them in his proposal – negotiations. He will “give them up” as a compromise but will expect Republicans to give up something they want in return. This type of list-based negotiating has become the norm in St. Paul. Each side proposes or passes a list of items to bring to the final poker game negotiation. The state would be better served if the sides proposed more realistic policies and spent their time convincing the public that their way is best.

American Experiment has written extensively on the folly of raising taxes in the current budget environment and our economists reacted this week to Walz’s new budget:

Why Minnesotans should be wary of Gov. Walz’s plan to hike taxes on the rich
Gov. Walz’s budget proposals are still bad

Senate Republicans also released budget targets last week leading with their proposal (already passed) to eliminate taxes on PPP loans for small businesses and workers receiving unemployment.

Gov. Walz was supposed to deliver his State of the State address Sunday March 21 but was exposed to COVID-19 from one of his staff, so he postponed the address and put himself in quarantine. Capitol Watch will provide analysis of his speech once it gets rescheduled.

This piece originally appeared in our Capitol Watch newsletter. Click here to receive the weekly Capitol Watch newsletter.