Dear Neighbor,
The governor announced his budget proposal this week, the first step toward setting a new two-year budget for the state before the Legislature adjourns in late May.
Before we get into those details, I would like to note a House ag committee this week approved a bill that would provide a 60-day extension for farmer-lender mediation. This is in large part a response to challenges COVID-19 has created in setting up in-person meetings and I hope providing more time would be helpful to people during these tough times.
As for the governor’s budget, his plan includes a $1.7 billion tax increase, with a 15% tax increase on businesses and a 10% hike on Minnesota’s top tax bracket. This would give Minnesota the nation’s second-highest business tax and third-highest income tax rates.
There seem to be some misconceptions regarding the governor’s proposal. He is selling it as a plan to make the rich pay their “fair share” but there also would be impacts to middle- and low-income Minnesotans.
What has been glossed over to this point is, of the Governor's $1.7 billion in tax increases, $941 million are regressive taxes that impact Minnesotans of every income level. For example, his plain to raise taxes on cigarettes and vaping products would impact lower earners the most.
Furthermore, there seems to be a disconnect regarding how raising business taxes impacts all of us. The Minnesota Department of Revenue’s own numbers show that corporate taxes result in increased taxes on low- and middle-income families, with 43% falling on Minnesota consumers through higher prices, 43% on other state consumers/employees, and 5% on employees (layoffs, wage reductions, reduction of hours, etc).
Or, to look at it another way: corporate tax increase end up falling only 9% on the company (owners/shareholders) and 91% on consumers and employees. No matter how the governor’s proposed tax increases are spun, we all could expect to feel the the pinch one way or another.
But, again, the governor’s proposal is a first step in a long process. The House and Senate each will issue budget plans based on updated figures provided in the state’s February economic forecast. The governor then will issue an update of his own plan with those numbers in mind, setting the stage for negotiations the remainder of the session.
One place I hope we can find agreement on a new budget pertains to the state sharing in the burden. The governor’s proposal only calls for $150 million in cuts, or about 0.3% of the budget. And even the cuts are questionable because some of the savings are from state prescription drug costs not incurred, in part because people have scheduled fewer doctor’s appointments during the pandemic.
Until next time, enjoy your weekend and I will be back soon with more notes.
Sincerely,
Paul