Minnesota’s growing surplus should open the door for future tax reform
Minnesota Management and Budget (MMB) released the newest revenue report review. According to the numbers, Minnesota’s surplus for the fiscal year ending July is up by $1.8 billion.
Net general fund revenues totaled $3.306 billion in May, $1.796 billion (119.0 percent) more than projected. Net receipts from individual income, sales, and corporate taxes for the month exceeded the forecast, while other revenues matched the forecast. Normally, most tax year 2020 individual income tax payments would have been made in April, however, this year taxpayers were allowed to delay final and extension payments until May 17. The filing delay contributed to the income tax variance for the month of May. For fiscal year 2021, year to date receipts are now $23.113 billion, $2.170 billion (10.4 percent) more than projected
This trend has been observed in numerous other states as well. For instance, Wisconsin’s projected budget surplus for the 2021-2023 three-year period grew by $4.4 billion, cementing the idea that job losses during the pandemic were concentrated among low-income taxpayers. This meant little to no disruption in income tax revenues. Additionally, federal stimulus, vaccines, and reopening plans have also increased economic activity.
People are spending more than anticipated, federal funds continue to flow into the state and the economy is reopening as vaccination rates climb. Sales and corporate tax revenue were up last month, although the bulk of the surplus revenue came from individual income taxes.
In the ongoing special session, the Minnesota legislature will be hashing out the specific details of the $52 billion budget legislators agreed on during the regular session. The timing of the surplus means it likely won’t be considered for the budget currently under discussion.
Tax cuts should be considered
Nevertheless, this surplus should open the door for future tax reform.
Governor Walz and other lawmakers spent the entire session advocating for higher taxes on (rich) Minnesotans. Yet state revenue outcomes continue to prove that such tax hikes are unnecessary. If anything, revenues show Minnesota could sustainably cut taxes to spur growth without affecting revenues.
Certainly, the current increase in economic activity has been partially propped up by federal spending. However, it remains true that policies geared towards raising incomes (such as tax cuts) for Minnesotans would have a higher impact on revenue than raising tax rates.
The Minnesotans and the state economy would simply benefit from Minnesotans keeping more of their money in their pockets.