With an unprecedented nearly $18 billion state budget surplus, Minnesotans should have been able to expect a break on taxes this year. Or at least for their elected state lawmakers and Gov. Tim Walz to hold the line on spending.
Nope. Not so far.
Even with that record amount of cash in the bank, the DFL governor this past week pitched a budget that would increase state spending by 25% or more, would increase the capital gains tax (by $1.5% on incomes between $500,000 and $1 million, leaving Minnesota with the highest such tax rate in the nation, according to the Minnesota Chamber), and would set a higher top tier of income tax of 12.5% (making Minnesota second in the nation in state income tax, behind only California, according to Center of the American Experiment economist John Phelan).
Missing from the governor’s proposal is an end to the state’s tax on seniors’ Social Security checks. Minnesota is one of just 11 states still cruelly taxing the benefit. Even that tax apparently is acceptable.
Perhaps most painful to the pocketbook of all: Walz proposed a 0.7% payroll tax on all employers and employees in the state — a new $1 billion tax — to pay for a new $40 million state-run program to guarantee paid time off to Minnesota workers. That’s even though 80% of employers in the state already provide the benefit, according to the Minnesota Chamber. And most of the workers in the state not receiving it are part time, seasonal, temporary, or in another position that historically hasn't received such a benefit and shouldn’t expect to.
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If the $1 billion isn’t enough to run the program, the state can raise the tax. There’s no cap on the payroll tax in the governor’s proposal, according to a fact sheet from United for Jobs.
Other states with such programs exempt small businesses and seasonal workers. Not Minnesota’s proposal.
“It’s no exaggeration to say this could be the most expensive paid-leave insurance program for small business in the country,” said John Reynolds, the state director in Minnesota for the National Federation of Independent Business. “And (this is) a time when small businesses are already losing ground and getting stretched thin from the worker shortage, supply disruptions, and inflation. Many have still not even fully recovered from the pandemic.”
Yes, the governor’s proposal also taps the state’s budget surplus for genuinely agreed-upon needs, like education, housing, infrastructure improvements, and more. And yes, most Minnesota families can expect to get a little slice of their overtaxation back via rebate checks of up to $2,000, plus $200 per child, up to three children, as Walz additionally announced.
But it’s hard not to be as exasperated as the Minnesota Chamber of Commerce that anyone in St. Paul could be talking about tax hikes and increased spending at a time when the state is already so flush with available cash.
“Minnesota is experiencing a record near-$18 billion surplus,” Laura Bordelon, the state chamber’s senior vice president for advocacy, said in a statement. “Now is the time to make Minnesota more competitive and invest in our economic future by lowering taxes and preventing costly mandates — not proposing a 26% increase in government spending and top-in-the-nation taxes, including $1 billion in new payroll taxes, a metro sales area tax increase, a cannabis tax, and the highest capital gains tax in the nation.”
Additionally, another yes: the governor’s proposal is just that for now, a proposal, the start of negotiations, with Minnesota’s elected lawmakers on notice for final decision-making. Most years that would offer some assurance to Minnesotans watching their tax bills and bottom lines.
But this year, perhaps not so much. Not with the DFL in control of the Minnesota House and Minnesota Senate and in position to simply follow the lead of the DFL governor.
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There’s a lack of political checks and balances in Minnesota right now that’s far from ideal.
Minnesotans can call on the DFL majorities in St. Paul to show restraint and responsibility. But apparently none of us should have been realistically expecting a break on taxes this year.
This editorial was written by the Duluth News Tribune Editorial Board.
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