Walz revises budget, drops some proposed tax hikes

Walz’s original $52.4 billion proposed budget was the largest in state history and would have increased spending by $4 billion compared to the last budget.

The Minnesota State Capitol in Saint Paul, Minnesota/Shutterstock

(The Center Square) — After a $1.6 billion projected budget surplus and $2.6 billion on the way from the federal government, Gov. Tim Walz proposed a revised budget for the next two years.

“Minnesotans have met the challenges of COVID-19 pandemic as they always do when faced with hardship — with grit and resiliency,” Walz said in a statement. “But we know that our students, working families, and small businesses have borne the brunt of this pandemic. That is why, with the recent good news that Minnesota now projects a positive budget balance, we’re recommending additional investments to support working families, ensure students catch up on learning, and help small businesses stay afloat while driving economic recovery.”

Walz’s original $52.4 billion proposed budget was the largest in state history and would have increased spending by $4 billion compared to the last budget.

The revised budget dropped some, but not all, of the original $1.6 billion tax hikes.

Walz’s revised proposal keeps his new fifth income tax tier for household incomes above $1 million or a single earner bringing in $500,000 or more, which would shift Minnesota from the fifth-highest income tax — 9.85% on taxable income over $164,400 a year — to the third-highest.

The budget also kept a higher tax rate on capital gains: 1.5% on sales profits between $500,000 and $1 million, and 4% if more than $1 million.

That budget reduced the planned corporate tax hike from the current 9.8% to 10.8%, down from the original 11.25%, which would have bumped Minnesota to the second-highest corporate rate in the nation behind New Jersey at 11.5%.

The revised budget restores $491 million to the budget reserve.

Walz’s revised proposal would make the first $350,000 of business Paycheck Protection Program (PPP) loans and the first $10,200 of unemployment benefits in 2020 tax-free.

The GOP-controlled Senate has passed legislation seeking to exempt the state from taxing all PPP loans.

The budget removed the real estate tax increase and increased the working family tax credit amount.

The revised budget removed the proposed $1/pack cigarette tax hike, which would have raised the price from $3.04 per pack to $4.04, but left the 35% tax of the gross retail receipts on nicotine devices and a tax on electronic delivery devices at 95% of the wholesale sales price.

The $1/pack tax would have skyrocketed Minnesota near the highest cigarette taxes in the country below New York and Connecticut, according to Igentax.com.

The changes follow as Senate Republicans have said they won’t support tax increases. The Senate Republicans pitched a $51.9 billion budget Wednesday.

Senate Majority Leader Paul Gazelka, R-East Gull Lake, responded in a video, saying, “You’re just going to have to call the governor’s office and just say, ‘Knock it off’ … we don’t want [any tax increases].'”

“We’ve got to work together with the governor but it’s not to raise taxes, it’s to pass a balanced budget that makes sense for Minnesota,” Gazelka said.