Two cheers for Minnesota’s budget deal

The devil is in the detail, but early indications are that we can give two qualified cheers to the budget deal thrashed out in Saint Paul over the weekend.

Both sides gave up something. The Republicans conceded on the sick tax, it will remain albeit at a lower rate of 1.8%, and Democrats gave up their proposed 70% gas tax hike. The Pioneer Press reports

“Today we prove that divided government can work for the betterment of the people we serve,” said Gov. Tim Walz, who announced the budget plan with Republican Senate Majority Leader Paul Gazelka and Democratic House Speaker Melissa Hortman. “Instead of dysfunction, shutdowns and yelling we have a compromise agreement. … We’re still friends.”

How Minnesotan.

We at the Center have argued strongly against the gas tax hike, so we are pleased to see this cut. We have also long argued that Minnesotans are too heavily taxed, so we are pleased to see the quarter percent cut in the second tier of the state’s income tax, which currently covers married couples filing jointly who make between $38,771 and $154,020, from 7.05% to 6.8% by 2022. Baby steps, but in the right direction. And we have also argued that federal tax conformity should be prioritized, so we are happy to see that included.

Every silver lining…

This isn’t an unqualified endorsement of the deal. The current budget is $45.5 billion and the projected base budget for 2020-2021 was $47.4 billion. This deal will raise this to $48.3 billion, a 6% increase from the current budget. This is above inflation so amounts to yet another real terms increase in state government spending. This comes at a time when, in real terms, the state’s politicians already had near record amounts of your money to spend. Data from Pew shows that, since the Great Recession, Minnesota has had the 5th fastest-rising tax burden in the nation.

At some point, the share of the state’s citizens money that its politicians take in revenue will have to stop rising. And that time cannot be far off.

John Phelan is an economist at the Center of the American Experiment.