Walz budget hikes taxes on Minnesota's top earners, adds funding for schools and riot-damaged businesses

Minnesota Gov. Tim Walz proposed a $52.4 billion, two-year budget that includes tax hikes on the state's highest earners and corporations to pay for education funding increases and money for riot-damaged businesses.

Walz's spending plan, his first since the coronavirus pandemic started hammering the state's economy last spring, aims to close a projected $1.3 billion budget shortfall while adding $1.3 billion in additional spending.

"Just so people out there are listening, if your family is making less than $20,000 a week, this isn’t going to hit you," Walz said.

Walz is proposing a series of tax increases:

  • A new fifth income tax bracket for married couples making more than $1 million a year, or single filers making $500,000. Walz's office said this would affect 21,000 taxpayers, or 0.7 percent of the total 
  • A 15 percent increase in the corporate tax rate, taking it from the current 9.8 percent to 11.25 percent 
  • A 1.5 percent tax on capital gains above $500,000, and a 4 percent on gains above $1 million
  • A tax on foreign income repatriated to Minnesota
  • Tax increases on cigarettes and vaping supplies

The tax increases amount to $1.7 billion in revenue over the two-year budget. The first-term Democratic governor is proposing to redirect the money into:

  • A funding increase for K-12 schools of 1 percent in 2021-22 and 2.5 percent in 2022-23
  • Expanded summer school offerings this year
  • A one-time payment to schools that have lost enrollment to private schools during the pandemic
  • Expanding the state's Working Families Tax Credit
  • A one-time $750 payment to 32,000 low-income families in the Minnesota Family Investment Program
  • $150 million to businesses in Minneapolis and St. Paul that were damaged or destroyed in the summer 2020 riots following the killing of George Floyd
  • Expanding the state's lowest-tier income tax bracket. The state's revenue commissioner says this will benefit more than 1 million taxpayers, though the average benefit will be modest: $36

Tuesday's rollout marks the unofficial start of the Legislature's budget fight that will run through the end of the session in May. Lawmakers must approve a budget by the end of June or the government shuts down.

Republicans who control the Senate said they would not support any tax hikes.

"Thank God the Republicans have the majority in the Senate ," Senate Majority Leader Paul Gazelka, R-East Gull Lake, said in a news conference Tuesday afternoon.

Republicans blasted Walz for failing to find more than $150 million in budget cuts, which amounts to 0.3 percent of the overall budget, while increasing spending by $1.3 billion. Senate Republicans are instead proposing a 5 percent, across-the-board

And they scoffed at his proposal to expand the state's lowest-tier income tax bracket and the average benefit of $36.

"That equates to $3 a month. And that’s the perfect example of why his budget is not real. It’s not serious," House GOP Leader Kurt Daudt, R-Crown, said. "That’s a talking point. That’s not a tax cut. I don’t think you can get a cup of coffee at Caribou Coffee for $3."