Walz says $1,000 rebate checks wouldn't have federal tax hit, GOP opposes them

Bring on the debate over Walz Checks 3.0. 

Gov. Tim Walz on Wednesday appealed for rebate checks of $2,000 per family and $1,000 per individual as the governor tries to address high inflation, which will be a political liability for Democrats this fall. The DFL governor, who is running for re-election, said the divided Legislature should agree to a special session only to approve the checks.

"This is the most effective way to impact gas prices that a state can do," Walz said at a news conference in the state Capitol.

But the idea, which would use $4 billion of the state's budget surplus, still lacks the bipartisan support it needs to pass. Republicans presented a united front against rebate checks Wednesday, referring to them as an election-year gimmick.

"Now he sees himself in trouble in an election year, and this is nothing more than election year desperation," House GOP Leader Kurt Daudt, R-Crown, said in his own news conference minutes after Walz spoke.

Republicans favor permanent income tax cuts instead. During this year's legislative session, they unsuccessfully pushed to cut the rate in half on the state's bottom income tax bracket. All filers pay at least a portion of their income in that bracket.

Since January, Walz has proposed three rebate checks, the check size growing each time. But the two previous versions fizzled with the Legislature, failing to pass either the Republican-controlled Senate or the DFL-led House.

RELATED: 'Walz checks' fizzled. Here's why we'll keep hearing about them until November

Wednesday, the governor gained an ally in DFL House Speaker Melissa Hortman, who was previously cool to the idea of direct payments and did not include them in House budget proposals.

"This kind of stimulus for families could make a big difference in their budget," Hortman, DFL-Brooklyn Park, said while appearing with the governor.

The previous versions of checks would have been federally taxable, meaning that Minnesotans would have seen a tax hit on the rebate amount next spring. Walz said his staff had figured out how to eliminate federal tax implications by structuring the rebate as a state tax credit.

"There is no federal tax. So, think of another reason not to do it, because there isn’t one," Walz said of Republicans.

The governor accused Republicans of being disinterested in any deals because they expect to regain more power in the Capitol after November's election. GOP leaders refuted the allegation.

"Absolutely not. What’s happening is Republicans are proposing $8.5 billion in permanent, ongoing tax relief and it appears the Democrats are saying no," Senate Majority Leader Jeremy Miller, R-Winona, told reporters.

The Legislature adjourned in May having done next to nothing to address record inflation of 8.7% in the Twin Cities that month. Additional stimulus through rebate checks or tax cuts would juice demand -- as element of inflation -- though it would be on a small scale compared with the broader economy.

Gas tax holiday?

High gas prices are among the most pressing issues for policymakers who have few levers to control prices at the pump.

President Joe Biden on Wednesday called on Congress to suspend the federal 18.4-cent per gallon gas tax and encouraged states to do the same with their own taxes.

When reporters asked about the issue, Walz and Minnesota's legislative leaders expressed openness to suspending Minnesota's 28-cent per gallon gas tax. But none of them have pushed the issue, and it would also take a special session to approve.

Walz said a gas tax holiday would have a minimal benefit for drivers compared with a $1,000 rebate check.