The DFL’s proposed tax cut does not live up to the hype

On March 21, Governor Tim Walz and DFL legislators announced that they had reached an agreement on spending targets for the next biennium. With their agreement, Minnesotans will see the state government spend an extra $17.9 billion in the 2024-2025 biennium, which is the entire state surplus. Some of that spending will cross over into the 2026-2027 biennium.

Since announcing these spending targets, Walz has lauded the budget agreement, specifically praising the ‘historic investments’ that it makes for children and families. Not only that, but Walz has also praised the budget’s $3 billion earmarked for tax relief, calling it the largest tax cut in state history.

Our budget makes historic investments in education, kids, and families – all while delivering direct checks and the largest tax cut in state history.  
  
This is how we make Minnesota a global destination to live, work, and raise a family.

— Governor Tim Walz (@GovTimWalz) March 25, 2023

Should Minnesotans be impressed?

Not in the least.

Despite being the ‘largest’ tax cut in the state’s history, $3 billion is only 17 percent of the total state surplus. The only likely reason that this is the largest tax cut in the state’s history is that Minnesota, despite having some of the country’s highest taxes, is not in the business of cutting taxes.

In fact, the last time that Minnesota cut any taxes — in 2017 — the savings only amounted to about $225 million. And only 4 years prior to this, the state raised taxes by adding a fourth-tier income tax bracket of 9.85 percent. So, of course, any small money given back to taxpayers now is going to look significant by historical comparison.

Secondly, given the small size of the money earmarked for tax relief, and the type of proposals being floated at the capital, it is highly unlikely that people who are burdened with high taxes will see any type of relief.

Take, for example, relief checks. When Walz proposed spending $8 billion on tax cuts, about $3.9 billion was going to be spent on rebate checks. But even with $3.9 billion, those rebate checks were going to be targeted to taxpayers with incomes less than $75,000, for single filers, and $150,000 for joint filers. So, if only $3 billion is available for tax relief, it means rebate checks would have to be even more scaled than what Walz was proposing.

However, there are a couple of proposals under consideration, apart from rebate checks. These include tax cuts on social security and tax credits for families with children. Both of these programs are not only targeted but also problematic for the tax system for numerous reasons. Refundable tax credits, for example, are an ongoing expense for the state government that will have to be funded somehow.

Either way, with three different problematic programs all competing for $3 billion, Minnesotans would be too optimistic to expect significant relief.

Proposed tax and fee hikes will negate any tax relief

What’s perhaps the most problematic thing with Walz touting the DFL budget agreement as the state’s largest tax cut proposal is the fact it comes with billions in proposed fees and tax hikes.

Citing the fact that the $17.5 billion is only one-time money, and the government needs ongoing revenue sources for existing as well as new programs, the DFL has proposed, among other things, to

• create a payroll tax to fund the state’s paid Medical and Family Leave Program
• create a fee on all deliveries to fund transportation
• hike fishing license fees
• hike registration fees
• hike the sales tax in the metro

Not only that but as reported by the Star Tribune, more income taxes could still be in the mix as bills in the legislature take shape.

The broad tax packages could include additional tax increases. DFL House Speaker Melissa Hortman didn’t close the door on asking the state’s wealthiest residents to pay more through the creation of a fifth-tier income tax bracket. They want to make sure the state can “sustain budgets over time,” she said.

Quite literally, the DFL is taking with one hand, and giving with the other.

Minnesotans shouldn’t be impressed

Not only is the size of funds earmarked for tax relief a small portion of the humongous surplus, but the DFL’s own efforts to raise taxes and fees will negate any type of tax relief. Simply put, the proposed $3 billion tax cut does not live up to the hype.