Why taxpayers are the biggest loser in the debt ceiling deal
The good news (if you might even call it that) is that President Joe Biden and House Speaker Kevin McCarthy reached a deal to prevent a default. The bad news…
Our Give It Back campaign is sending thousands of emails to Gov. Tim Walz and Minnesota legislators demanding that the surplus be returned to the people who created it. A false narrative about the origin of the surplus is starting to emerge, based on the replies we’re seeing from Democratic lawmakers.
We wrote about this false narrative already, fact-checking Gov. Walz for his statement that most of the surplus is the result of spending cuts and corporate profits.
The budget forecast documents from Walz’s own Office of Management and Budget show the growth in individual income taxes was $2.708 billion, more than double the growth in corporate taxes. And spending reductions accounted for only $331 million. The ongoing permanent surplus is even more reliant on individual income taxes, with $3.252 billion expected in 2022-23, ten times more than the expected growth in corporate taxes.
Two state senators are echoing the governor’s false message in their reply to our Give It Back emails. From Sen. Mary Kunesh (DFL-New Brighton):
Thank you for your message supporting the return of the surplus to Minnesotans; I do appreciate hearing from constituents on important issues such as this. I strongly agree with you that the budget surplus should be used to aid Minnesotans and the Minnesota economy.
In actuality, the surplus is the result of record corporate profits rather than Minnesotan’s tax dollars. It is important to know that since 2019 our state legislature has passed more than $1 billion worth of tax cuts for businesses, individuals, farmers, and seniors – the first tax rate cut in more than 20 years. The surplus dollars are not due to federal relief dollars, one-time funding opportunities to be used on specific, intentional pandemic-related responses.
Sen. Kunesh, like Gov. Walz, is flat-out wrong about the origin of the surplus. It will be easier for Democrats to spend the surplus on their favorite programs if it’s the result of evil corporate greed. It’s another example of how language and definitions can influence the final outcome of legislation.
Sen. Aric Putnam (DFL-St. Cloud) responded to our email with an incoherent message full of inaccuracies.
The surplus is a big issue these days. I know it might seem like the surplus is due to over taxation, but it isn’t really. The surplus is a balance relative to a forecast. We thought we were going to have a certain amount of money, so we spent a certain amount of money, but we didn’t take care of all our needs- just some of them that we thought we could afford. It turns out we got a lot more than expected, not because tax rates were increased or too high, but because our forecast was off. We thought the pandemic was going to do some real damage to the state’s coffers and people’s incomes, so we were frugal. But some people made a lot of money off the pandemic. So, when they paid their taxes, we had more in the bank than we anticipated. Hope that makes sense.
Actually, that makes no sense. Sen. Putnam is saying the surplus is not due to over-taxation, it’s the result of our forecast being off. Yes, Senator, the forecast predicted around $50 billion in revenue to fund a $50 billion budget. The state actually collected more than the forecast, usually referred to as an “over-collection.” He also admits “we had more in the bank [from people paying their taxes] than we anticipated.”
His response continues:
I know the governor has a proposal to return a bunch of the surplus in the form of checks to taxpayers. I don’t think that’s a bad idea. But there is a wrinkle in here. If we don’t use some of the surplus, taxes will go up. We owe the federal government 1.3 billion dollars for our unemployment insurance trust fund. We need to pay that down or taxes will go up. That’s federal law. Nothing we can do about it. I’m the chief author of the bill that would use some of the surplus for that purpose. So, whIle it would be politically easy to give all the surplus back, and that’s a promise you’re going to hear from other people, the situation is much more complicated. It would be irresponsible not to spend part of it. I want us to remember that this is one time money, and we need to think long term rather than just at what’s easy. Thanks much for writing.
Putnam does argue in favor of using the surplus to pay back the unemployment insurance fund, although most other states used federal ARP money for that purpose. He then argues “it would be irresponsible” not to spend part of the surplus, claiming it is one-time money. That statement is categorically false. Most of the $7.7 billion surplus is sustainable and permanent.
Gov. Walz and now Senate Democrats are trying hard to change the parameters of the debate. Don’t let them do it.
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