Gov. Walz’s budget includes tax rebates worth up to $2,600 – Twin Cities

Minnesota Gov. Tim Walz released his two-year state budget plan Tuesday that the Democrat said would cut taxes by $5.2 billion and increase spending by more than $11 billion on schools, housing, workforce, public safety and more.

Walz touted the proposal including ‘the largest tax cut in state history’ with rebates and credits, while Republican leaders noted it was also the largest increase in state spending in decades.

“In this budget, what you see is we value our people,” Walz said Tuesday at the state Department of Revenue. “We value our children, we value our environment, we value our opportunity to be innovative and we value fairness in the things that we do.”

Minnesota Gov. Tim Walz presents his two-year budget proposal in St. Paul Tuesday, Jan. 24, 2023 as his cabinet members look on. The Democratic governor’s plans include about $5.4 billion in tax cuts and $11.2 billion in new spending. (Christopher Magan / Pioneer Press)

Walz’s plans lean heavily on the state’s unprecedented $17.6 billion budget surplus that comes from a mix of unspent savings and higher than expected tax revenues. If all of the governor’s plans became law about $1.3 billion of the current surplus would remain on the bottom line.

Under his proposal, the state’s two-year spending plan would grow from $53 billion in the current biennium to more than $65 billion, roughly a 23 percent increase. That doesn’t include the one-time cost of roughly $4 billion worth of tax rebates an another $1.2 billion in ongoing tax credits that would permanently reduce state revenues.

The tax rebate checks would be worth as much as $1,000 per taxpayer or $2,600 per household and there’s also plans to reduced, but not eliminate, state taxes on social security. The governor also wants tax credits for child care and the other costs of raising children.

“It is meant to make life more affordable,” Walz said, noting that a ‘middle-class family of four,’ could see as much as $10,000 in tax reductions. “I’m incredibly proud of this budget.”

Democratic-Farmer-Labor Party members are in control of state government with a slim majority in the House and a one-seat margin in the Senate. That means, if DFLers can hold together, Walz will likely get a lot of what he wants.

House Speaker Melissa Hortman said in a statement that Walz’s budget “reflects the values of Minnesotans” including strong schools, affordable health care and a fair economy. “Our state is in a strong position to solve big challenges and address the needs of the people of Minnesota,” Hortman said.

Senate Majority Leader Kari Dziedzic, agreed. “We also know that Minnesotans are tired of gridlock and inaction, and the Senate majority is looking forward to working with the governor and the House to get those priorities across the finish line,” Dziedzic said.

Republicans quickly characterized Walz’s plans as way too much new government spending and far too few tax reductions. They say Minnesotans want to completely end taxes on Social Security and see tax rates slashed.

“Minnesotans are looking for their money,” said House Minority Leader Lisa Demuth, R-Cold Spring, who noted a full repeal of Social Security taxes was missing, but a new payroll tax for paid leave was included. “If we can’t cut taxes now, when can we?”

GOP leaders found little about the governor’s proposal they supported saying it was ‘too extreme.’

Senate Minority Leader Mark Johnson, R-East Grand Forks, left, and House Minority Leader Lisa Demuth, R-Cold Spring, respond to Gov. Tim Walz's budget plans.
Senate Minority Leader Mark Johnson, R-East Grand Forks, left, and House Minority Leader Lisa Demuth, R-Cold Spring, respond to Gov. Tim Walz’s budget plans at the Capitol in St. Paul Jan. 24, 2023. (Christopher Magan / Pioneer Press)

“At this point, when you are increasing taxes, creating new government bureaucracy, growing government by 25 percent on the backs of Minnesotans, that’s not something we are willing to support,” said Senate Minority Leader Mark Johnson, R-East Grand Forks.

Here’s a closer look at some of the biggest pieces of Walz’s spending plan:

Taxes

Nearly $4 billion of the budget surplus would go back to taxpayers in rebates worth up to $1,000 for individuals or $2,000 for households with parents eligible for an additional $200 per child for a $2,600 maximum rebate. More than 2.5 million households would be eligible for the rebates that would be capped at income levels of $75,000 for individuals and $150,000 for joint filers.

Another $1.7 billion would pay for tax credits for families with children for child care and other costs.

Parents would be eligible for child care credits of $4,000 per child up to $10,500 would be available to families earning up to $200,000. A child tax credit of $1,000 per kid with a cap at $3,000 would be phased out for family incomes above $50,000.

Paid family and medical leave

About $668 million from the surplus could be used to cover startup costs for a paid leave program that would provide up to 12 weeks of time off at a portion of a workers salary. A new 0.7 percent payroll tax would cover the estimated $1 billion in ongoing costs and could be split between employers and workers.

Education

There’s more than $2.8 billion for public schools including a 6 percent increase to the per-pupil funding that currently sends districts about $7.4 billion a year. Going forward, the funding formula would be tied to inflation with an estimated annual cost of about $740 million.

Districts would also receive a share of $750 million to reduce the cost of educating students with special needs and those learning English. Another $389 million would pay for universal school meals and additional funds would go to mental health, academics, college readiness and workforce programs.

Workforce and businesses

In addition to a paid leave program, Walz has proposed a grants, credits and tax breaks to help grow Minnesota business and industry worth $454 million in the next two-year budget.

There’s also roughly $682 billion aimed a workforce programs aimed at addressing employment gaps in key industries such as health care, long-term care and teaching. In all, Walz has proposed about $1.7 billion in spending on businesses and workers.

Public safety

The budget proposal has $860 million for public safety and the judiciary including $300 million for communities to hire and retain first responders. There’s $134 million for increased probation and parole costs as well as funding for community outreach and crime prevention.

What’s next?

Walz is expected to outline additional plans Thursday for a public infrastructure bill that will borrow money to build and repair state roads, bridges, buildings and other facilities. Lawmakers failed to approve a bill last year after receiving nearly $6 billion worth of requests from communities statewide.

In the coming weeks, Walz’s commissioners will make the case for the governor’s budget plans to lawmakers in various House and Senate committees. Then the hard work of aligning the priorities of the two chambers with the governor’s will begin.

The next two-year budget is due before the Legislature adjourns at the end of May.

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