House DFL is going to hike taxes on Minnesota’s businesses
When the COVID-19 pandemic hit Minnesota last year, the virus and the state government’s response to it wrought havoc with our state’s economy. The unemployment rate rocketed from 3.5 percent in March to 11.3 percent in May. This brought a surge in the number of claims for unemployment insurance, and there were 32,133 applications for Unemployment Insurance on March 18 alone. To cover this, the state government spent its unemployment surplus — that is what it is there for — and borrowed heavily from the federal government to cover the excess. The result is that Minnesota now owes the federal government $1.07 billion. How should it repay it?
I wrote this back in December. At the time, I noted that:
A majority of states used funds provided by the federal American Rescue Plan (ARP) to help repay the debt. With $1.15 billion of Minnesota’s ARP money left unspent at the end of the 2021 session, House Republicans sent a letter to Gov. Walz on Nov. 23 urging him to follow these other states and use those funds to cover the debt.
This was good policy then and remains so now. The alternative is a tax hike for Minnesota’s businesses. As Peter Callaghan explained for Minn Post in December:
There will be an increase in unemployment insurance taxes whichever way policymakers move, as new rates are already programmed into the system for next year. Those tax hikes will be much larger, however, if they are relied upon to pay back the federal loans, replenish the trust fund and pay the interest being charged by the federal government.
Those rates could increase by as much as 14 percent just to repay the borrowing. Notices of rates for 2022 will be sent this month, and whether those are the rates that will be applied when employers send their first quarter of 2022 payments on April 1 is up to the governor and legislators.
Sadly, Minnesota’s House DFL is proposing to block it — and all for a stunt. The Star Tribune reports:
Legislators on both sides of the aisle have said they want to put some money toward addressing the federal debt and rebuilding the trust fund. But House Democrats argue the spending should be coupled with $1 billion for workers who were on the front lines of responding to the COVID-19 pandemic.
These are two separate issues. Whatever one thinks of the rival proposals for payments to ‘front line’ workers, there is no reason to hold Minnesota’s businesses hostage.
The House DFL’s position is an outlier. In February, with bipartisan support, the Senate approved a $2.7 billion plan to replenish the trust fund and repay the federal government, a plan which Gov. Tim Walz also supports. The whole thing is being held up by the House DFL.
What does this mean for Minnesota’s businesses?
For some, the change would be minimal. But others, like Marshall-area business owner Kris Gruhot, are bracing for an increase of tens of thousands of dollars over the next year.
“It’s just going to be a tough year. A really, really, really tough year,” said Gruhot, owner of D & G Excavating.
It will be harder still thanks to Rep. Winkler and the House DFL.