State spending trend faces headwinds from increasing spending

An Associated Press article titled “State tax cutting trend faces headwinds from declining revenues and tighter budgets” has been carried widely in the last few days. It reports that:

Income, sales, property and gas taxes: Almost every U.S. state cut at least one such broad-based tax as budget surpluses soared over the past three years.

Some states made permanent tax reductions. Others passed one-time rebates or temporary suspensions. One way or another, whether red or blue, all states save Alaska and Nevada joined in.

It is true that Minnesota did enact some very modest tax cuts in the last legislative session. There was an approximately 20% one time increase in property tax refunds for homeowners and renters and an increase in the amount of Social Security income exempt from state income tax.

But that was it. The vast expansion of tax credits which Minnesota’s media dutifully tried to convince you was a tax cut was, in fact, a massive hike in welfare spending. The AP article seems to have a pretty broad definition of “tax cuts” in any event, including “one-time rebates” like Minnesota’s ludicrous “Walz Checks.” If you want to know whether taxes have been cut or not, look at the rates and thresholds. In Minnesota’s case, with the exception of Social Security taxation, these haven’t changed in the big categories like income tax. And against that, of course, we saw around $9 billion in hikes to various state taxes and fees.

And yet, just a year after posting a budget surplus of $18 billion and hiking taxes by $9 billion, Minnesota faces a forecast budget deficit of $2.3 billion. But this isn’t, as the AP article suggests, because of shrinking revenues as a result of tax cuts — as we’ve seen, there hardly were any. It is, as the Star Tribune reports, “due to higher-than-anticipated spending for health and human services and education.”

Whatever the case may be in other states, it is not the case in Minnesota that a wave of tax cuts have blown a hole in the state budget. It was out of control spending that did that.