Here is what’s wrong with Walz’s spending plan

With a projected $7.7 billion surplus as well as $1.1 billion unspent federal funds, the biggest question in Minnesota’s upcoming legislative session will be how to spend those funds.

Yesterday, the Office of Gov. Tim Walz and Lt. Governor Peggy Flanagan announced ‘The Walz-Flanagan Expanding Economic Opportunity Agenda,’ a spending plan to ‘invest’ the surplus in people that have made the Minnesota economy strong.

In addition to sending direct checks to Minnesotans, the proposal includes numerous spending programs.

To continue growing Minnesota’s economy, we must invest in the people who made it strong in the first place,” said Governor Walz. “By investing in workforce development, cutting taxes for the middle class and working families, lowering costs, and expanding access to resources like technical education and high-speed broadband, we will improve economic prosperity across the state and grow the workforce we need to compete.”

“This plan builds our economy by putting people—our strongest asset—at the center of the blueprint. Right now, we have a remarkable opportunity to give money back to middle class Minnesotans, working families, and small businesses,” continued Governor Walz. “In this budget, if you are a frontline worker with children, earning up to $70,000 per year, you will get about $2,000 back in your pocket.”

“During the COVID-19 pandemic, we have seen economic inequities exposed and exacerbated – for frontline workers, for young people, for immigrants and BIPOC communities, and for small, family-owned businesses. Our plan to expand economic opportunity will help ensure we are meeting the needs of all Minnesotans in a 21st century economy,” said Lieutenant Governor Flanagan. “When we pursue strategic and equitable investments in our economic future, we aren’t just recovering from the pandemic – we’re coming back stronger than ever.”

ICYMI: Yesterday, @GovTimWalz and @LtGovFlanagan announced their plan to continue expanding economic opportunity across Minnesota!

It's a plan that puts people and families first, that supports farmers, workers, and caregivers, and it will continue to #MoveMNForward! pic.twitter.com/MGgIrOnZkL

— Minnesota DFL Party (@MinnesotaDFL) January 21, 2022

What’s wrong with the plan

Apart from the fact that the plan dedicates only a tiny amount of money to taxpayers –– who deserve to get back the majority if not all of the surplus ––, there is little evidence indicating that most of these spending proposals are necessary or even helpful.

Cash payments

Taken together, direct cash to individuals as well as to frontline workers only make up about 22 percent of the surplus. In fact, direct checks to all tax-paying Minnesotans –– who made this surplus possible –– only make up just 9 percent of the entire surplus.

In addition to the checks being too small to make a sizable difference, there is no evidence that these one-time transfers help individuals grow their income. As John Phelan has explained, Walz checks would not even begin to cover the costs of inflation. The economy is not suffering from a lack of spending, so these checks will not do anything to stimulate economic growth.

Training programs and higher ed funding

When it comes to workforce and job training programs, there is very little evidence that they work. And to the extent that they do, they only help people who would have been successful without the programs.

Spending on higher ed does not lower the cost of education. It merely pushes those costs to taxpayers.

Tax cuts for small businesses and Minnesota families

Certainly, replenishing the Unemployment Insurance Trust fund to ensure that businesses do not face tax hikes is commendable. But calling these tax cuts is misleading. Furthermore, the state has over $1 billion in federal funds that it can prioritize to replenish the Unemployment Trust fund before digging into the surplus.

“Increasing the income threshold and maximum credit amount for Minnesota’s Dependent Care Credit” does not cut taxes for all families. Only those with dependents and who earn below the threshold get a tax cut. It is doubtful that the extra credit amounts will be large enough to make a dent in the high cost of childcare for families as he claims.

Broadband access and angel tax credits

With the passage of the infrastructure bill, billions of dollars will be distributed to the states for the sole reason of improving Broad Band Acess. Minnesota will get about $264 million. The proposed $175 million investment proposed by Walz is unnecessary.

Development incentives like angel tax credits have little success. They merely transfer taxpayers’ money to businesses.

Conclusion

The only good aspect of Walz’s proposal is that it includes a lot of one-time spending plans. This means the plan would not significantly add to ongoing government obligations. However, very little about this agenda will grow Minnesota’s economy or expand economic opportunity.

The plan does not address what is ailing Minnesotans –– punitive taxes.

Minnesotans are plagued with some of the highest taxes in the country, which hurt businesses and force high productive, high-earning Minnesotans out of the state. Minnesota has lagged other states in growth in recent years — a big reason for that is our high taxes.

To expand economic opportunity, Walz should focus on efforts that make the state competitive in attracting investments. Permanent income tax cuts would improve our competitiveness.