Walz checks will boost inflation
When he announced his $65.2 billion two-year ‘One Minnesota’ budget yesterday, a 26% increase from the current two-year budget, Gov. Walz claimed that it will “lower costs, cut taxes, and improve lives for Minnesotans.” But a closer look at the proposals it contains indicates that it will not do these things.
Walz checks, again
Bring Me the News reports:
Under the proposed budget, $4 billion of the state’s surplus would be sent back to Minnesotans in the form of direct checks.
Around 2.5 million households (sic) would receive a check, according to the Walz administration. The direct payments would be structured as an advanced income tax credit equal to $2,000 for families with income below $150,000 and $1,000 for single filers making less than $75,000, plus $200 per dependent up to $600.
Associated Press reports:
They would be exempt from federal taxes…But those making more than the income caps would get nothing, Revenue Commissioner Paul Marquart acknowledged.
This is the old idea of “Walz checks” again. It will not “lower costs”; quite the opposite, in fact.
These days, when politicians talk about rising costs they are referring to high rates of inflation. This is caused by a more rapid expansion in the amount of money spent on things than of the amount of things for it to be spent on. This point is crucial: if money is created and not spent, if it is just squirreled away somewhere, it is not inflationary. It becomes inflationary only when it is spent, when it starts chasing those goods and services and bidding their prices up.
Minnesota’s forecast budget surplus is a result of the Federal Reserve’s monetary expansion. It mostly consists of money carried over from the 2022-23 biennium in the Beginning Balance. That money has been “dammed up,” so to speak; it has been held back by the state government and not been spent on things. This will have acted to reduce the rate of inflation by effectively “sterilizing” the money.
If we now take that money and spend it on a scheme such as “Walz checks,” that dam will be removed and that money will go chasing after goods and services, bidding their prices up. It will act to increase the rate of inflation and “costs” will increase at a rate greater than they would have otherwise, the exact opposite of the policy’s stated intention.
The case with tax cuts is very different. While sending out checks to people is a pure demand-side measure — it boosts spending on goods and services but not their production as it’s a one-off — cutting tax rates simulates the production of goods and services as well. With more things for money to be spent on, their average price falls (or increases less rapidly). That is one reason we advocate using this surplus to fund permanent cuts in Minnesota’s tax rates: that is a real cost-reducing measure.