Legislators are exaggerating how much of the surplus Walz’s spending plan will give back to Minnesotans

Yesterday, Gov. Tim Walz’s tax policy proposal got its first hearing of the session in the Minnesota House. The tax policy plan, which is part of a broader spending package, includes Walz checks, spending to replenish the unemployment insurance trust fund, and changes to make Minnesota conform to federal tax changes, as well as expansion of some credits which would offer relief to some families.

As I have written previously, the plan leaves a lot to be desired. This is why I was interested to see how supporters would defend the plan. Introducing the Governor’s bill, Representative Paul Marquart decided to focus on the $4.4 billion that the bill will send back into taxpayers’ pockets.

“We have probably an $8.8 billion surplus when you count the $7.7 billion from the November forecast and the $1.15 billion from the [American Rescue Plan Act federal] funds,” Marquart said. “We have some folks who say, ‘Give it all back in tax cuts,’ and others who say, ‘Give it all back in needed investments.’ What I like about the governor’s budget is that he takes a both-and approach. He takes a balanced approach to doing both tax cuts and investing in very needed areas around the state.

“For example, if you take the unemployment insurance trust fund replenishment, which Gov. Walz proposes, and the $1 billion for the frontline workers and the $700 million for the rebate, that’s $4.4 billion, or half of the surplus, going straight back into taxpayers’ pocketbooks.”

$4.4 billion is only a small percentage of total excess funds

Looking at it in just plain figures, $4.4 billion is indeed a lot of money. However, Minnesota is expecting a total $13.7 billion surplus for the next two bienniums. Adding in the unspent federal funds brings the total funds to $14.85 billion. The $4.4 billion that is supposedly going back to Minnesotans is just 30 percent of $14.85 billion. The rest is going to some form of government spending.

Moreover, when we look at the $4.4 billion going back to Minnesotans, a big chunk of that contains spending that is unwarranted –– for example, the $1 billion for essential workers –– or could partly be replaced by unspent federal funds –– like replenishing the unemployment insurance trust fund. Not to mention that it is a stretch to even consider spending on these two programs a tax cut of any kind.

Certainly, replenishing the unemployment insurance trust fund is a no-brainer. But even if the state government was to use $2.7 billion of the surplus for that, that would still leave about $5 billion that legislators could give back to Minnesotans in the 2022-2023 biennium. Including the 2024-2025 biennium surplus, that number goes up to about $11 billion –– or 80% of the total two-year surplus. And that does not even include the unspent federal funds.

However, when we look at the actual amount of tax relief that Walz is offering to individual taxpayers, the total amount is only $820 million, or just 6 percent of the total surplus.

Conclusion

Even if we were to be generous and agree with Representative Marquart and consider the whole $4.4 billion as tax cuts, that still means that Walz’s plan would only give back 30% of total excess funds to Minnesotans.

The truth of the matter, however, is that tax actual cuts –– changes that will reduce the amount of taxes Minnesotans pay now or in the future –– constitute an even tinier amount of Walz’s tax and spending plan.