To tax or cut? Walz, GOP dispute tax plans' impact

Gov. Tim Walz and Senate Republicans battled this week about the impact their competing tax plans would have on lower-income Minnesotans.

In percentage terms, the cumulative effect of Walz’ tax, transportation and health plans will increase the tax burden the most on poorer Minnesotans, an analysis by the state Revenue Department found.

Walz is pushing back, saying that the revenue generated by his plan will fund services that benefit lower-income people. Meanwhile, his health commissioner is pointing to the Senate GOP’s own plans, which the commissioner said would put child care and health assistance programs in jeopardy.

Walz, House Democrats and Senate Republicans have three weeks left in the legislative session to strike a deal.

Walz’s proposal

The governor is seeking to increase the gas tax and vehicle registration fees while continuing Minnesota’s tax on medical providers. Taken together, the proposals will increase the tax burden by 12 percent on households making at least $14,529 but not less than $23,941 a year – the highest percentage of any income group.

In comparison, those households earning between $127,271 and $185,600 a year will see their tax burdens increase by 6.5 percent, the state’s analysis indicates.

One Republican senator said the governor’s plan amounted to stealing money from people.

“The lower- to middle-income will carry the weight of the tax increases that the governor and the Democrats are proposing,” said state Sen. Roger Chamberlain, the Senate’s tax committee chairman. “That’s not Chamberlain. That’s the facts, the data. That’s what it is.”

Speaking with reporters this week, Walz said the analysis doesn’t tell “the whole story” because it doesn’t examine who would benefit from the increased revenue.

“I think you’ll see overwhelmingly that the things we’re paying for with some of these revenues are the things that will make the biggest impact,” he said.

Senate Republicans’ proposal

The Walz administration also pushed back in a second way: by warning of deep service cuts if Senate Republicans win end-of-session negotiations and their plan takes effect.

Senate Republicans said this week they were seeking $800 million in tax cuts and breaks, and said no one would pay more. The GOP proposal would allow wealthy individuals and corporations to get a tax break for donating to private schools that fund scholarships for low-income students.

This week, Human Services Commissioner Tony Lourey wrote to Senate Republicans raising alarm bells about the effect it would have on programs.

Among the outcomes Lourey warned about: 

•    The state’s child care assistance program would be at “serious risk of being eliminated, or significantly underfunded, because of unrealistic requirements and impossible timelines,” affecting 15,000 families.
•    Health care benefits for low-income families, including dental, vision, and transportation to the doctor would be cut.
•    Hundreds of thousands of people who rely on Department of Human Services assistance would have “unmet needs.”

“I am deeply concerned about the devastating consequences,” Lourey wrote.

House Democrats’ proposal

Democrats who control the House are mostly in lockstep with Walz but said their plans would not increase the tax burden on lower-income people as significantly as the governor’s proposals.

For example, while Walz is seeking across-the-board increases on vehicle registration fees, House Democrats said they would cut the tab fees on the oldest, lowest-value cars.

“I am very confident that our package is more progressive than the governor’s,” House Speaker Melissa Hortman said. “But that being said, we stand really shoulder to shoulder with the governor.”

Democrats said they had requested a state analysis on their proposal and expected to get it within one to two weeks.