MN should use federal money, not tax hikes, to cover $1 billion Unemployment Insurance debt

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?

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.

Sadly, Senate DFLers responded by reaching into their bag of cliches. They wittered last week:

Instead of making the fiscally responsible decision to require employers to pay their fair share, House Republicans are making the unconscionable ask that Minnesotans sacrifice our remaining American Rescue Plan dollars and then some to give profitable corporations a tax cut, including those businesses which earned record-breaking profits throughout the course of the pandemic.

‘Corporations’? Check. ‘Fair share’? Check. This release comes, once again, from the fantasy land too many Minnesota policymakers inhabited where every single business owner is some cigar chomping, top-hatted capitalist with a pile of gold coins in a vault like Scrooge McDuck. The fact that many business owners run small businesses on tight margins is a concept utterly alien to them.

The Senate DFLers are being very dishonest when they talk about a “tax cut.” As Peter Callaghan explains for Minn Post:

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. 

It is a strange world where not raising taxes is a “tax cut.”

Whatever you call it, this is a huge hike to the cost of hiring workers. And, if you make hiring workers more expensive, fewer workers will be hired. Because of this, many states have already moved to delay automatic rate increases or freeze experience ratings temporarily. Minnesota should do the same.

“These funds are meant for our recovery,” the Senate DFLers write. It says a lot that they can only conceive of this recovery being driven by vast pots of government money being spent by them. A sustainable recovery will, in fact, only come by letting Minnesotans get back to work. Hobbling the state’s businesses — of all sizes — with a huge hike in the cost of hiring workers is exactly what we don’t need.