Capitol Watch: They came, they saw, they taxed, they spent

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With the 2023 Minnesota legislative session finishing today, Gov. Tim Walz and Democratic majorities in the House and Senate accomplished everything on their wish list. We won’t have to wait very long to judge whether the decisions they made will have a positive or negative impact on the future of the state. American Experiment will begin tracking metrics like population migration, state GDP growth, unemployment, consumer energy prices, student achievement and crime rates to see which direction the state is headed. The most obvious test of the tax and budget decisions of this session will be the next few state budget forecasts. Can the Minnesota economy survive what just happened or will we whiplash from a $17.6 billion surplus to a deficit?

Big questions about the 2023 session and its impact on Minnesota:

How will the Minnesota economy react to the legislature spending every last dime of a $17.6 billion surplus before raising billions more in taxes? In the very first Capitol Watch of 2023, we called out Minnesota Republicans as weak for declaring that tax increases should be off the table with such a huge budget surplus. As it turned out, they knew Walz and the Democrats were capable of blowing through the surplus and demanding even more in taxes.

At first, legislative Democrats and Gov. Walz stuck to the budget targets they released on March 21, 2023. But as the session wore on, their appetite for spending grew and new revenue streams were identified. Taxes on income, sales, businesses, cars, boats, pot, and delivery fees were not enough to cover the spending. So at the last minute, a gas tax increase, INDEXED TO INFLATION, was added with most of the money dedicated to transit. Transit! Even in the face of a changing workforce after the pandemic, Democrats in Minnesota are stubbornly shoving money down the rathole of light rail, heavy rail (to Duluth!) and bus rapid transit.

Total tax increases for the next four years are over $8 billion, and we are still tracking the final few bills. The two-year state budget is growing from $52 billion to $72 billion, a 38% increase.

How do you claim “the largest tax cut in Minnesota history” when no tax rates were actually cut? As we have written about here and here, the DFL tax bill is nothing more than a redistribution of wealth. Most of the relief provided will go to families that have no state tax liability. The Walz checks shrunk from $1,000 during the 2022 campaign to $260 per person in the tax bill. The child tax credits phase out after only $37,500 of income for families. Fewer seniors will have to pay state taxes on their social security income, but it doesn’t come close to the promise of full repeal made by Democrats in swing districts in 2022.

All these tax changes will be more than offset by increases in the payroll tax, sales tax, gas tax, delivery fees and more.

How will sweeping new polices like the Blackout Bill and Paid Family Leave impact the Minnesota economy? The Blackout Bill will force 100% of our electricity to come from carbon-free sources by the year 2040. Gov. Walz passed this massive change to our economy without ever having to answer questions about how much it will cost consumers. We answered it for him in this report: it will cost each Minnesota electricity customer, on average, an additional $3,888 per year. Walz promised lower electricity rates as he signed the bill. Stay tuned.

The paid family leave bill will also have an oversized impact on the economy, and no one really knows what it will look like. The bill passed through several committees before it even had a fiscal note attached, and the fiscal note only covers the cost to government, not the general economy. With a .7 percent payroll tax shared by every employer and employee and hundreds of state employees working in a new bureaucracy, a drain on the state economy is guaranteed.

How will voters react to the 2023 session? All 134 members of the House must stand for election in 2024. Will voters provide a course correction to this extreme agenda? There are several strong messages for House Republicans to use against House DFLers in swing districts. According to our Thinking Minnesota poll, several items on this agenda are wildly unpopular with the public.

  • Felon voting – 60% oppose
  • Sex changes for minors — 67% oppose
  • Delivery fee for packages — 72% oppose
  • Car tab fee increase — 81% oppose
  • Raising the sales tax in the metro area — 57% oppose

Support for the Blackout Bill and divisive ethnic studies also dropped significantly as more poll respondents understood the ramifications of those polices.

Running Uber and Lyft out of the state and taking e-pull tabs away from local VFW and youth hockey associations are other easy direct mail hits against anyone voting for those bills. The simplest and most effective attack on DFL House members might be “they voted to raise your taxes despite the $17.6 billion surplus.” And don’t forget the DFL removing language in the Human Rights statute dealing with pedophilia. As someone who has written thousands of political direct mail pieces, I can assure you that message will be a direct hit with independent voters and impossible for DFL House members to explain away.

As we wrote last week, the most liberal parts of the DFL agenda were driven by members who will not be targeted in the 2024 election. They represent lopsided DFL districts in the suburbs or core cities of St. Paul and Minneapolis. Our polling showed Independents and Republicans do not support this liberal agenda. Running against these leftist leaders and their out-of-touch agenda will be very easy for any Republican in a swing district.

It’s going to take more than one email to unpack the 2023 Minnesota legislative session, so count on Capitol Watch to break it all down in the weeks ahead. In fact, tune in to our lunch webinar this Thursday for a first look at what happened.

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