Gov. Walz’s budget proposals are still bad

When Gov. Walz unveiled his proposed budget for the 2022-2023 biennium in January, I wrote that the proposals were “horrible.” Yesterday, he unveiled a revised two-year budget taking into account the late February forecast of a budget surplus of $1.6 billion for the biennium. While there were some moves in the right direction, the proposals are still, overall, bad.

It is good news is that the proposed hike in the estate tax is gone. As I wrote last year:

“Minnesota’s estate taxes are high. Minnesota is one of only 12 states and the District of Columbia that imposes an estate tax… Of these 13 jurisdictions, Minnesota’s exemption, $2.7 million, is lower than in another eight. At 13%, Minnesota has the second-highest minimum rate of estate tax after Vermont. Minnesota’s top rate of estate tax, 16%, is the joint second highest.”

The evidence suggests that these taxes push people out of states, taking with them a greater amount in future payments of income and sales taxes than the estate tax brings in. In short, this is a tax which loses the state government money, overall.

The proposed cigarette tax hike is gone too, which is probably also good news. Cigarette tax are regressive but are often justified on the grounds that they stop people smoking. The evidence suggests, however, that the proposed hike was not of a magnitude sufficient to decrease smoking by much. The effect would just have been a regressive tax hike.

The proposed hike in Minnesota’s corporate income tax to 11.25% is also gone, but this isn’t great news as it has been replaced by a hike to 10.8%. This would still move us from having the third highest rate in the United States to having the second highest rate.

And there is more bad news in the retention of the proposed creation of new, fifth, highest tier of state income tax of 10.85%. This would bump our top rate up from the fourth highest in the United States to third highest.

So, while this revised budget was a step in the right direction in terms of taxes, it does not go far enough. With spending already at record levels, a forecast surplus of $1.6 billion and billions of dollars of federal funding on the way, there is no plausible argument for hiking taxes on Minnesota’s citizens any further.

John Phelan is an economist at the Center of the American Experiment.