Will ‘historic’ tax cuts do enough to help Minnesotans? Lawmakers at odds over tax rebate checks vs. spending on priorities

Gov. Tim Walz has wanted to give money back to Minnesotans in the form of tax rebates checks since last January. And that position only solidified as the state’s budget surplus grew and grew.

First, the governor proposed checks worth $350 for a couple. But the idea drew criticism — especially to the eponymous branding and the timing on the cusp of re-election campaign — from Republicans who wanted ongoing tax cuts, and a lukewarm reception from fellow DFLers in the Legislature. Then, the governor bumped up his proposal, reaching $2,000 for joint filers as he negotiated with GOP lawmakers and ran again for office.

This year, with Democrats in full control of state government and a record $17.5 billion budget surplus, lawmakers have agreed to send checks to millions of Minnesotans as part of a larger tax deal that includes roughly $4 billion in tax cuts, credits and expenditures, and more than $1 billion in tax increases.

But the amount in each check, controversially, has dropped significantly: $260 for individuals, $520 for married couples and an extra $260 for every child, with a maximum of $1,300.

Those rebates are much smaller than what Walz campaigned on. But to DFLers, the checks are just one part of what is a historically large package of tax cuts and credits that could help people in a variety of ways, like slashing child poverty, offering help for renters and more — all while leaving huge sums of money for things like K-12 education, housing, a paid family leave program, construction projects, transportation, public safety and the environment.

“The bottom line is that we’re going to see life become a little more affordable for folks,” the governor told MPR News on Wednesday.

Republican legislators don’t see it that way, and have settled on a different sentiment: That’s it?

They say the rebates are meager, and an example of how billions in tax cuts aren’t much at all when considering the mammoth surplus, especially when paired with tax increases on the wealthy and others.

“You’re going to get a little bit of a rebate,” said Senate Minority Leader Mark Johnson, R-East Grand Forks. “But remember, that’s going to be coupled with an immense amount of taxes.”

How rebate checks fit into a larger tax bill

The rebate checks that legislators are expected to pass will have income limits. They’re only available to joint filers with less than $150,000 in household income or single filers with less than $75,000. That means about 2.58 million Minnesotans will get a payment. The details of how and when that will be sent out haven’t been released yet.

The cost to the state is significant, roughly $1.15 billion in this two-year budget cycle. That’s still less than what Walz proposed initially at nearly $4 billion. But it’s still the largest item in the tax bill by a significant margin.

The second-most expensive tax policy expected in the Minnesota budget will be what’s known as a Child Tax Credit, an anti-poverty measure that will cost the state about $794.5 million in the two-year budget. 

The state will offer a refundable tax credit — meaning you get a payment even if you don’t owe any taxes — worth $1,750 for every child, phasing out with income starting at $35,000 for joint filers and $29,500 for single filers.

DFL lawmakers agreed to an expanded and modified tax credit for renters, and other refunds and spending meant to lower property taxes for some. They did not agree to another major tax credit proposed by many DFLers to help pay for the cost of child care. 

How Democrats are pitching their budget

At a news conference Thursday, House Speaker Melissa Hortman, DFL-Brooklyn Park, said the budget serves the governor’s vision of making Minnesota one of the best places to raise a family. And she defended the amount of tax cuts compared to overall spending, saying that many will benefit from what legislators are doing.

“I don’t think people are surprised that Democrats want to invest in education and health care and taking care of people,” Hortman told reporters. The education budget has $2.2 billion in new state spending. “And in terms of money going back to people, there is a lot of money going back to people in all sorts of different ways. Child care providers will get a raise, those who take care of people with disabilities will get a raise. Minnesotans are receiving back the surplus.”

Senate Majority Leader Kari Dziedzic, DFL-Minneapolis, described the tax bill as the “largest tax cut in history,” and said while campaigning, Democrats heard people ask for more spending on child care and housing.

Hortman also said the approach to taxes and rebates reflects their philosophical view on the economy during the COVID-19 pandemic. “Many people fell far behind, other people did quite well,” Hortman said. “A lot of people who were able to work from home actually saved money. So the way we looked at returning the surplus in the form of rebates was it should be means tested, so the people who need the money get it.”

Republicans advocate for more rebates, broader tax cuts

Republicans, however, see it another way. Johnson, the Senate Minority Leader, told reporters that his party wouldn’t use all of the surplus on tax cuts or rebates. He said they favor spending on public safety, struggling nursing homes and infrastructure. 

But the GOP contends plenty of the spending proposed by Democrats isn’t critical. Sen. Jim Abeler, R-Anoka, said he thinks lawmakers should consider what’s “essential, important and nice.” He said school funding, nursing homes, fixed roads and police may be essential. But that’s not true for everything in the many spending and policy “omnibus” bills DFL lawmakers are passing across state government.

“In every bill there are some things that are nice,” Abeler said. “Every bill has $200 million to spare on projects that are very low priority.”

Rep. Josh Heintzeman, R-Nisswa, said earlier in the week that a large environmental spending bill passed by the DFL had a host of little initiatives that add up into large sums. One was $4 million for a “lawns to legumes” program for converting yards to native plants. “Are those needs or wants?” he said.

The Senate GOP has negotiated for more money for nursing homes and rebate checks by blocking a bonding bill that would finance infrastructure projects across the state. 

But DFLers have promised to use cash for those projects, since cash requires only a simple majority while borrowing money through bonding needs a 60% supermajority in the House and Senate. And while Republicans have railed against tax increases — yes, on the wealthy and corporations, but also more broadly through a metro sales tax and potentially new taxes meant to fund transportation — they don’t have the power to stop it.

The GOP also wanted tax cuts and spending to be distributed among a broader group.  “The reality of it is, that while they will tout it as a record amount of tax refunds to the people of Minnesota, the people that helped create the surplus are getting very little out of it,” said Sen. Bill Weber, R-Luverne.