Minnesota tax revenues 20 percent higher than forecast
In November 2020, the Minnesota Management and Budget forecasted a $636 million deficit for the biennium ending July 2021 and $1.2 billion for the 2022-2023 biennium. By February 2021, however, things had turned around. The new forecast, instead, estimated a $1.6 billion surplus in the 2022-2023 biennium.
Two months after the forecast, revenues seem to be holding up even better than expected. according to Minnesota Management and Budget, in February and March, the department of revenue has collected 20.3 percent more in tax revenue than was forecast.
While monthly trends can be volatile, the report by the Department of Revenue seems to indicate that this trend might continue due to an improved outlook.
The outlook for U.S. real GDP growth in 2021 and 2022 has improved since Minnesota’s Budget and Economic Forecast was prepared in February 2021. IHS Markit (IHS), Minnesota’s macroeconomic consultant, now expects annual real GDP to grow 6.2 percent this year and 4.3 next year, compared to 5.7 percent and 4.1 percent in their February forecast. For years 2023-2025, the forecast is now slightly lower than in February, with IHS anticipating growth of 2.2 percent in 2023, 2.3 percent in 2024, and 2.4 percent in 2025. The improvement in IHS’ 2021 outlook from February to April is the net effect of two new factors. First, debit/credit card spending through mid-March, even prior to the disbursement of the most recent round of stimulus checks, was stronger than expected.
Second, the pace of the national inoculation campaign has been faster than anticipated, and many states are relaxing containment measures. Consequently, IHS raised their projected growth of consumer spending on services other than housing, utilities, and healthcare. This forecast does not include the potential impact of the $2.1 trillion American Jobs Plan unveiled by the Biden Administration in March.
Will current tax hikes proposals be dropped given an improved outlook? Highly unlikely. Gov. Walz’s second budget proposal, which came out after Minnesota was already poised to receive a surplus in tax revenue, still included some tax hikes. So it should be more evident to Minnesotans at this point that our leaders want more of our money just to fulfill their own spending agendas. As tax revenues beat forecasts, there is no good case to be made for tax hikes, if there ever was one.