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Gov. Walz's proposed budget largest in state history, includes $8 billion in tax cuts

Gov. Tim Walz, pictured here last year, on Tuesday unveiled his complete $65.2 billion two-year state budget proposal he says will "make Minnesota the best state in the nation for children." (House Photography file photo)
Gov. Tim Walz, pictured here last year, on Tuesday unveiled his complete $65.2 billion two-year state budget proposal he says will "make Minnesota the best state in the nation for children." (House Photography file photo)

Make Minnesota the best state in our country for kids to grow up.

It’s a lofty goal but that was Gov. Tim Walz’ mantra Tuesday during the unveiling of his proposed budget for the next two fiscal years.

“Over the last week, we laid out our plan to make Minnesota the best state in the nation for children, invest in our economic future, combat climate change, and improve public safety across the state. Today, we lay out the full picture of how this budget will lower costs, cut taxes, and improve lives for Minnesotans,” Walz said. “For a middle-class family of four, the One Minnesota Budget could put $10,000 back in their pocket. We are delivering a transformational budget for Minnesotans, and I look forward to getting this done.”   

His budget would see expenditures totaling $65.2 billion while also containing $8 billion in tax cuts – both record highs for a biennium. It would also spend the lion’s share of the state’s estimated $17.6 billion surplus, in the form of both spending and rebate checks.

Arguing Minnesota has a once-in-a-generation opportunity to think afresh about the future and chart a sustainable path forward, Walz’ budget would have a far-ranging impact on the state’s finances and families.

[MORE: Read the governor’s budget recommendations]

House DFL leaders voiced strong support for the proposal.

“The Governor’s budget reflects the values of Minnesotans: we value great public schools, affordable health care, and an economy that works better for everyone. House DFLers share these goals and values,” House Speaker Melissa Hortman (DFL-Brooklyn Park) said in a statement. “I commend the Governor for proposing a bold budget with an inspirational vision for our future. I look forward to our continued partnership as we craft our budget.”

Republicans, however, offered forceful criticisms during an afternoon press conference.

House/Senate Republican Press Conference 1/24/23

“In a time there is a record surplus, $17.6 billion, Minnesotans are expecting to have that back,” said House Minority Leader Lisa Demuth (R-Cold Spring). “Unfortunately, what we heard today is Minnesota is spending and it’s going to cost Minnesotans a little bit more to be here. That was a little bit surprising. If we can’t cut taxes now, when can we?”

While Republicans are open to the rebate checks, Demuth said they would rather see the governor focus on permanent tax cuts, including the elimination of the state tax on Social Security income.

Lots of movement on taxes

Emphasizing Minnesota’s history of progressive taxation, Walz plainly stated that he intends to continue that tradition.

Primarily, he would like to send checks directly to Minnesota residents. Individuals making less than $75,000 a year would receive $1,000 and families earning under $150,000 a year would be eligible for $2,000. Households would also qualify for an extra $200 per dependent (with a limit of three). This money would be non-taxable and would come out of the surplus, totaling nearly $4 billion.

Tax credits for child care costs are on the table for families making under $200,000. This would total over $1 billion over four years. Meanwhile, tax credits tailored specifically for lower-income families would result in tax cuts of $1.1 billion in 2024-25 and $1.2 billion in 2026-27.  

In regards to seniors and the contentious state tax on Social Security benefits, Walz would keep it in place but reduce this tax burden to the tune of $219 million.

Revenue Commissioner Paul Marquart said those actions would cut child poverty by 25% and reduce Social Security taxes for around 90% of seniors, respectively.

Walz would like to see an increase on one stream of income, however: capital gains. He proposes a 1.5% surcharge on capital gains and dividends exceeding $500,000 and a 4% surcharge on those exceeding $1 million.

Other budget priorities

“Prohibition doesn’t work,” said Lt. Gov. Peggy Flanagan, referring to marijuana and the DFL’s hopes to legalize adult-use cannabis this session. The budget calls for funding to establish an Office of Cannabis Management to regulate a legal marketplace.

Over $750 million is recommended to fund cleaner transportation across the state. This would include purchasing electric buses to replace diesel buses operated by the Metropolitan Council, providing matching state funds for dollars headed Minnesota’s way from the federal government, and expanding the state’s electric vehicle charging infrastructure. 

As for transit?

Per his budget, "The governor recommends enactment of a 1/8th cent sales tax in the seven-county metropolitan area, beginning in October of 2023, to expand investment in the regional transit system. The funds will be used with other federal, state and local resources to assist in addressing the operating and capital needs of the Metropolitan Council’s transit programs."

Previously announced priorities

Today’s presentation capped off a series of announcements coming from the governor over the last week. This included education, where Walz would like to increase the general education funding formula by 4% in 2024 and 2% in 2025; reduce the special education cross subsidy for local school districts by 50%; and institute universal school meals. This would amount to over $3 billion.

A package to broadly invest in Minnesota’s economic future, highlighted by a paid family and medical leave program, adds up to $4.1 billion. Walz believes this will make the state more competitive when it comes to attracting and retaining a high-quality workforce.

Additionally, $1.5 billion is included to expand access to affordable housing, with a special emphasis on eliminating veteran homelessness statewide. A public safety package totaling $300 million would also be distributed to city, county, and tribal governments.

Individual departments will be presenting their budgetary requests in greater detail to the relevant House committees in the coming weeks. A bonding proposal is also expected from the governor’s office on Thursday.

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