Minnesota tax revenues 20 percent higher than forecast
As tax revenues beat forecasts, there is no good case to be make for tax hikes, if there ever was one.
In February, newly elected Governor Tim Walz, who had ran as a moderate, unveiled a very unmoderate budget. It turned out that state coffers stuffed with record amounts of revenue and a forecast surplus of $1 billion weren’t sufficient to cover the governor’s spending plans. Spending in the next two years would jump from $45.5 billion to $49.5 billion, with much of the increased spending going on education, health care, and what the governor called programs to improve “community prosperity.”
Tax hikes would be needed to cover this. The centerpiece was a hike in the gas tax. On the campaign trail, the governor was careful to avoid revealing how much he wanted to raise this by. With the release of his budget we found out why; he proposed raising it by 70 percent, from the 28th highest nationally to fourth. This would cost the average driver an estimated $156 a year, more for those in rural areas. ‘One Minnesota’ was out of the window when it had only just got through the door.
While this proposed budget had support in the Minnesota House, Senate Republicans vowed to block it. So, last week, Gov. Walz released his modified budget. This included reductions in proposed new spending of $131 million, but included more than $3 million in new spending to bail the state government out of some of its most high profile blunders in recent years. An extra $2.1 million will be spent to strengthen oversight of the state’s Child Care Assistance Program following a critical legislative auditor’s report that found significant levels of fraud within the program. And $1.1 million will be spent to address continuing fallout from the botched 2017 rollout of the MNLARS vehicle registration system. The state government messes up and the taxpayers pick up the tab. But the governor did drop a bizarre proposal to spend an additional $700,000 on raising his profile, so, there’s that.
The Pioneer Press reported that “The overall general fund budget would dip from $49.5 billion to $49.4 billion.” This is wrong. The general fund budget will increase under the new proposal from $45.5 billion to $49.4 billion, not the $49.5 billion planned last month. Such is the nature of government spending ‘cuts’.
To fund this, an additional $65 million will be brought in from corporate taxes loopholes and $142 million set aside in the health care reinsurance program to help keep health care costs down by giving insurers money to offset costs will be shifted to the general fund. Sadly, that gas tax hike is still there. So, too, is a 2 percent tax on health care providers that is due to expire at the end of the year.
This second budget proposal does almost nothing to remedy the problems in the first one. Minnesotans are some of the most heavily taxed citizens in America. At a time when the state government has never had it so good in terms of revenue, it is incomprehensible that they should be forced to pay out even more for new schemes and core functions of the state, such as roads.
John Phelan is an economist at the Center of the American Experiment.