DFL “smart budgetary decisions” are not responsible for the surplus

When Minnesota’s blockbuster surplus of $7.7 billion for the FY 2022-23 biennium was announced on December 7, the DFL did a victory dance. Gov. Tim Walz, Lt. Gov. Flanagan, and DFL lawmakers had, we were told, “made smart budgetary decisions at every turn.”

No, they hadn’t.

In January 2021, nearly a year into the COVID-19 pandemic, Gov. Walz unveiled his budget for the 2022-2023 biennium. It proposed an estate tax hike and a hike in cigarette taxes that was regressive and unlikely to have any great impact on smoking. When he released his revised budget in February, these measures were gone, but Gov. Walz kept the proposed new fifth tier of income tax with a rate of 10.85 percent and a hike in the corporate income tax rate to 11.25 percent.

As we wrote at the time:

Minnesota has the fifth highest top rate of state personal income tax in the United States — 9.85 percent on income over $164,400 a year. Only Oregon, New Jersey, Hawaii, and California have higher top rates.

At 9.80 percent on the first dollar of taxable revenue, our state has the fourth highest state corporate income tax rate in the United States. Only Pennsylvania, New Jersey, and Iowa have higher rates.

So, in the midst of the pandemic, Gov. Walz wanted to make some of the highest tax rates in the United States even higher. They would have given Minnesota’s smaller businesses the highest starting rate of corporate income tax in the United States.

This idea was so obviously bad that even the House DFL didn’t include it in their proposed budget. They did, however, outbid Gov. Walz with their proposed fifth tier for income tax: 11.15 percent.

These were all bad policy proposals and we can be grateful to the Senate that they didn’t pass. As it is, with the old rates, income and corporate tax revenues are coming in miles ahead of forecast. It is clear that the forecast surplus has nothing to do with any “smart budgetary decisions” of the DFL.