Walz restructures rebate checks, says millions of Minnesotans would benefit

Minnesota Gov. Tim Walz restructured his signature rebate check proposal Tuesday, making the direct payments more lucrative for some while cutting out hundreds of thousands of households by lowering income caps.

Under Walz's plan, individuals making less than $75,000 a year would receive $1,000. Married couples earning less than $150,000 would get $2,000 from the state. Parents would receive an additional payment of $200 per dependent child, up to $600. Walz estimated that 2.5 million households will get a check, and the rebates will cost $4 billion.

Direct payments are one aspect of an overall $65.2 billion, two-year spending wish list that Walz will negotiate with a DFL-controlled Legislature that supports many of his ideas. The governor's plan calls for thousands of dollars in tax credits for families, which he said represents the biggest tax cut in state history, while it relies on tax increases to fund other spending proposals.

Walz lowed the income thresholds on his rebate checks in an effort to appeal to Democratic lawmakers who were lukewarm to his initial proposal in 2022. That plan had looser income caps: $164,400 for individuals and $273,470 for married couples. At the time, Walz said it would've benefited 2.7 million households.

"We came up with those numbers because that captures the vast majority of Minnesotans," Walz told reporters when asked why he settled on the lower income caps. "We'll make the case that this is a smart way to go about it."

The rebate checks won't be taxable and will be based on a person's 2021 adjusted gross income. State officials think they can issue most checks automatically by this fall if lawmakers approve, Revenue Commissioner Paul Marquart said.

Walz administration officials said the budget could provide up to $9,900 to certain families through a child tax credit, dependent care credit, and the revised rebate checks. Walz unveiled the tax credits at a news conference last week.

Tax increases

Walz on Tuesday also proposed two new tax hikes. The one that affects the most people is a one-eighth cent sales tax increase in the seven-county Twin Cities Metro. Walz didn't include the tax proposal in his budget promotional materials, but it was included in the 202-page proposal once it was posted online.

The tax would start in October and eventually collect more than $93 million a year to plug gaps in Metro Transit's budget. The money could eventually help see the over-budget, behind-schedule Southwest Light Rail project across the finish line, said Met Council Chairman Charlie Zelle.

"There are many needs in terms of capital expansion (and) a structural deficit going forward needs to be addressed," Zelle told reporters when asked about Southwest Light Rail. "I think this sustainable new revenue opens up those options. But to be determined how it’s stitched together. We’re confident we’ll be able to do it (finish the rail project)."

Walz's second proposal is a tax surcharge on capital gains and dividends, which would affect relatively few people. It calls for a 1.5% surcharge on gains and dividends higher than $500,000 a year, and a 4% surcharge on stock market earnings above $1 million a year.

Legislative Republicans, who are powerless to stop Democrats from passing a budget, criticized the tax increases and said Walz should've proposed tax cuts without income caps.

"If we can't cut taxes now, then when can we?" said House GOP Leader Lisa Demuth, R-Cold Spring.

Top Democratic lawmakers, on the other hand, praised the governor's budget and said they were united around shared principles.

"I commend the governor for proposing a bold budget with an inspirational vision for our future," House Speaker Melissa Hortman, DFL-Brooklyn Park, said in an emailed statement. Senate Majority Leader Kari Dziedzic, DFL-Minneapolis, later said the governor's proposal reflected Minnesotans' priorities.

Social Security income

The governor, a second-term Democrat, also proposed excluding more Social Security income from state tax. The change will save 43% of recipients an average of $278 per year, he said. Fifty-five percent of Social Security recipients already pay no tax.

Walz's Social Security plan is about one-fifth the size of the tax break that legislative Republicans and several DFL senators want. They've proposed a full exclusion, which would cost the state an estimated $2.8 billion in lost tax revenue over the next four years, compared with $468 million in lost revenue under Walz's proposal.

Overall, Walz has proposed spending $16 billion of the state's $17.6 billion projected budget surplus through a series of family tax credits, public school spending, and funding boosts to climate initiatives, public safety, and housing.

if you want to find a problem with having the best state for education, the best investments for the future, reducing childhood poverty by 25%, and watching the vast majority of Minnesotans seeing cost go down for them, good luck," Walz said of GOP criticism. "I look forward to that debate."