Plans to cut federal economic security programs take aim at wrong target

Federal investments in family economic security – including stable housing, nutritious food, affordable health care, education and training, and boosting family incomes through tax credits, among other things – keep millions of families out of poverty and reduce the severity of poverty for millions more. But calls by some to cut these investments in the name of deficit reduction are off the mark. Aside from health care, federal spending in these areas is declining compared to the overall economy, according to a recent report from the Center on Budget and Policy Priorities.

Many supports for lower-income people and families are designed to grow when the economy is doing poorly and more Americans fall on tough times, and then shrink when the economy is doing well. The Center on Budget and Policy Priorities took a look at spending that supports family economic security, and found that during the Great Recession, federal spending on these services grew to meet the needs of more people who were struggling to find work and make ends meet.

The spending bubble from the recession has disappeared. Compared to the economy as a whole, federal spending on nutritious food, stable housing, cash assistance, and more is shrinking.

The exception is health care, where growth reflects broader health care trends. Health care investments, such as in Medicaid, the Children’s Health Insurance Program, and others, allow kids, people with disabilities, and workers who don’t get health insurance through their job to see doctors and get medication they need to be healthy. While public health care costs are projected to continue to rise over the next 10 years, the increase will be slower than previous decades.

Since 2010, overall spending on investments in family security has been falling as a percentage of the economy. The increase in health care spending has been more than cancelled out by the decreased fed-spending-on-entitlementsspending for other low-income supports. This year, federal spending on these investments, as a share of the economy, will be below what it was before the recession started, and almost equal to the 40-year average level of spending. Federal spending on investments in family security is projected to continue to fall over the next 10 years.

The proposed cuts to these investments, including in President Donald Trump’s budget and the recently approved House Budget Resolution, would create increased hardship and poverty across the nation. Their arguments that cuts to these investments is needed to address the growing federal deficit ignores the fact that federal investments in these areas are declining. Instead, what has contributed to the recent steep increase in the federal deficit is the federal tax bill passed late last year. Lawmakers failed to fully pay for the bill’s tax cuts, which went predominantly to profitable corporations and wealthy individuals and families. The resulting drop in revenues harms the nation’s ability to fund essential services and respond to future economic downturns. And cutting supports for struggling families isn’t going to fill the budget gap caused by the federal tax bill.

For many people, investments in economic security can make the difference between hunger and healthy meals, or between a roof over their heads or a life on the street. Blaming these important investments for the growing national debt has to stop.

-Sarah Orange

Posted in Budget Process, Health Care, Poverty | Tagged , , , , , | Leave a comment

More new Census data shows Minnesota’s prosperity isn’t reaching all Minnesotans

The U.S. Census released more new data today indicating that the economic recovery continues to boost Minnesotans’ incomes. But the strides Minnesota has made in prosperity isn’t reaching all Minnesotans. Communities of color, workers earning lower wages, and others who face barriers to work are being left out of the broader economy’s success.

Minnesota continues to outperform the national figures in terms of economic well-being. In 2017, the income of the median Minnesota household increased to $68,388, more than $8,000 above the national level. The share of Minnesotans living in poverty, 9.5 percent, is also well below the national figure of 13.4. Today’s figures show how far Minnesotans have come since just after the Great Recession in 2011, when the median household income was $62,210 in today’s dollars.

Minnesota’s poverty rate is fourth lowest in the nation. Minnesota’s higher incomes and lower poverty come in part because of our investments in policies that lift up more Minnesotans and allow them to thrive in today’s economy. These policies include boosting the income of workers and families struggling to make ends meet through the Working Family Tax Credit, expanding opportunities for affordable health care through Medicaid and MinnesotaCare, and increasing Minnesota’s minimum wage. However, more needs to be done to break down barriers and make sure all Minnesotans, no matter their race or ethnicity, can participate in Minnesota’s economic prosperity.

This year’s Census data shows that Minnesotans of color are more likely to be left out of the economic gains that the topline numbers show. Communities of color face systemic barriers that make it harder to get ahead. In many communities of color, parents have limited access to the affordable child care they need to work, or reliable transportation to get to work on time or even get groceries back home. The historical roots of these barriers, such as restricting people of color to live in particular geographic areas and then failing to invest in those neighborhoods, means it’s all the more important to address these barriers and ensure all Minnesotans have the ability to succeed.

new-table

The Census data reflects these structural challenges: while 9.5 percent of Minnesotans lived below the federal poverty line in 2017, Minnesotans of color experienced poverty at much higher rates. One in four Black Minnesotans had incomes below the poverty line; for a family of four with two children that means living on less than $24,858. But only one in 15 white, non-Hispanic Minnesotans faced that same situation, highlighting the fact that some in our state don’t have the same opportunities to succeed.

The good news is that there are policies that can help more Minnesotans share in our state’s economic success. Investments in policies that break down the structural barriers many communities of color face and boost the incomes of everyday Minnesotans will move our state toward greater economic prosperity.

-Sarah Orange

Posted in Economy, Poverty, Racial Disparities | Tagged , , | Leave a comment

New Census data highlights Minnesota’s long-term progress in health coverage and the need to continue to invest

All Minnesotans deserve the opportunity to live healthy lives and get the treatment they need for asthma, diabetes, or a broken bone. According to new U.S. Census data, in 2017 fewer Minnesotans had health insurance, meaning more Minnesotans were not able to get the care they need to thrive. Minnesota has been a national leader in health care, even prior to Medicaid expansion and the Affordable Care Act (ACA), because of state investments in affordable health care and the well-being of our residents. However, this decline in coverage comes at a time when investment in health care is under threat at both the state and federal levels.

In 2017, 4.4 percent of Minnesotans went without health insurance at some point during the year, compared to last year when 4.1 percent of Minnesota were uninsured. This is substantially lower than the 8.2 percent of Minnesotans who didn’t have health insurance for at least part of the year in 2013, the year before the total roll out of the Affordable Care Act. While Minnesota’s uninsurance ranking is fourth best in the nation, we need to build on this progress.

Affordable health care allows Minnesotans, their families, and their communities to thrive. Children with health care coverage perform better in school. Health insurance allows workers to stay healthy and succeed at work. More people with health coverage also reduces strains on the health care system: fewer people struggle with medical debt and health care providers see a reduction in uncompensated care.

Unfortunately, over the past two years, Congress has considered multiple proposals to cut federal funding and consumer protections in health care. These proposals would threaten the health coverage of over one million Minnesotans who are able to see doctors and get their prescriptions filled through Medical Assistance, Minnesota’s Medicaid program, or MinnesotaCare, which provides affordable coverage for Minnesotans paid low wages. Cutting affordable health care options would move Minnesota backward.

Looming cuts to health care are also threatened at the state level. In 2019, policymakers must act to extend the Provider Tax, a significant funding source for affordable health care options and other important programs that help Minnesotans stay healthy. If not, this funding will disappear and many Minnesotans’ health coverage could come under threat. Now is not the time to cut state investments in Minnesotans’ health.

Importantly, investments through the ACA and Minnesota’s smart policy choices have allowed folks who traditionally have been left on the fringes of the health care system such as people of color, low-wage and part-time workers, people with pre-existing conditions, and others struggling to make ends meet, to see doctors and get the care they need to stay healthy. Despite the progress Minnesota has made, these communities still face significant barriers to getting treatment for their critical health needs.

Today’s Census data reflects Minnesota’s strong historical investment in health care. Now is the time to build on these successes.

-Sarah Orange

Posted in Health Care | Tagged , | Leave a comment

New U.S. House budget proposal gives peek into policymakers’ vision for the future

How do you spend your money? It’s a deeply personal question – in a world of limited resources, what you choose to buy or forgo is often a reflection of what you value, how much you value it, and where you want to see yourself in the future. This principle holds true in Washington D.C. as well. When policymakers come out with budget proposals, it reflects their values and priorities for the nation, and their vision for the future. So in June, when the House Budget Committee passed a Budget Resolution to cut $6.5 trillion over 10 years, with significant cuts to important supports for families trying to make ends meet, policymakers gave their constituents a preview of what they value and where they see the nation in the future.

Budget Resolutions are intended to create a blueprint for federal government spending and revenue over a particular time period. While Budget Resolutions are not binding decisions, they can set the stage for significant changes in tax or spending laws.

Take last year for example. Congress passed the Concurrent Budget Resolution for Fiscal Year 2018, which ultimately set the stage for the federal tax bill. That Resolution allowed the tax bill to move with only partisan support on an expedited timeline. The bill resulted in substantial changes in the U.S. tax code, largely favoring profitable corporations and high-income individuals and families. But it left out provisions that would have prioritized the millions of Americans struggling to make ends meet and failed to pay for the tax cuts contained in the bill.

The recently proposed House Budget Resolution would pay for those tax cuts through reductions to important programs that make it possible for people to have food on the table or go to the doctor. The proposal includes:

  • $2.1 trillion over 10 years in cuts to health care that will harm people who see doctors through Medicaid, individuals who buy health insurance on the individual market, seniors who rely on Medicare, and folks with pre-existing conditions;
  • $17 billion over 10 years in cuts through the elimination of the Social Services Block Grant that funds child and adult care services, home-delivered meals, employment supports, and adoption services;
  • $923 billion over 10 years in cuts to income security programs including food assistance that helps keep nutritious food on the table for kids, parents, seniors, and others who can’t afford basic necessities; and cash assistance that helps people buy diapers or fill up their tank with gas so they can make it to work; and
  • An expansion of paperwork requirements in food assistance, cash assistance, and Medicaid, making it harder for folks to get food, stay healthy, and afford the basics.

Our communities are stronger and more prosperous when we and our neighbors are succeeding. Investments that provide breakfast for growing kids and doctors’ visits for people fighting cancer matter to all of us. But the vision put forward in the Budget Resolution creates a false choice between supporting our friends and neighbors when they hit a rough patch and protecting our economy. Let’s not fall into that trap. Let’s instead make the choice to invest in our communities so that everyone has a chance to succeed.

-Sarah Orange

Posted in Federal Budget | Tagged , , , , , , | Leave a comment

Minnesota’s July economic update shows higher state revenues, but mixed economic news

The recently released July Revenue and Economic Update gave us mixed news about the state’s economic and budget landscape. The quarterly report from Minnesota Management and Budget (MMB) showed that the state revenues for the past fiscal year have come in on track. It also reports that the national economy is expected to grow in the near term, but then that growth will taper off over the next few years.

Some of the top takeaways from the Update include:

1. State revenues are coming in above projections. A preliminary look at the state’s revenues for FY 2018, which ended on June 30, shows they came in $348 million above projections; that’s 1.6 percent more than projected in the state’s February 2018 Economic Forecast. The increase is primarily due to higher income taxes received. A complete picture of FY 2018 revenues will be in the October update.

2. Long-term economic growth is expected to be lower. The national economic forecasters predict stronger national GDP growth for 2018, from the 2.7 percent predicted in February to 3.0 percent in the July update. In 2019, growth is projected to be the same as anticipated in February at 2.7 percent. However, growth is then expected to slow to 1.4 percent by 2021. This change in projected future economic growth is due to several factors, including the fading impact of stimulus from the federal tax bill passed last year, and the effects of the new tariffs between the U.S. and China.

july-economic-update-gdp

3. National unemployment rate expected to remain low. Nationally, unemployment was 4.0 percent in June, and is expected to drop to 3.4 percent in 2019. Job growth has been steady, with the economy adding around 200,000 jobs per month this year.

4. Forecasters are fairly confident in their projections. The forecasters assign a 65 percent chance that their baseline forecast is correct. They also give a 20 percent chance for a more pessimistic scenario in which there’s a short recession next year, and assign a 15 percent probability to a more optimistic scenario.

Next legislative session, policymakers will need to put together the state’s next two-year budget. After the conclusion of this past legislative session, we estimated that we could expect a surplus of about a $300 million for the next biennium. The increased revenues in this week’s economic update suggest that number could get larger by the time the next full economic forecast comes out this winter. However, there’s some data in this report that causes us concern; the lower economic growth in the longer term could substantially dampen future revenues.

The next quarterly update will be in October, right before the state’s November Budget and Economic Forecast, which will give us an updated picture of what resources will be available as policymakers and the public engage in next year’s budget debate.

-Clark Goldenrod

Posted in Economy | Tagged , , | Leave a comment

2018 Legislative Session: What was accomplished, and what’s left for next year

The 2018 Legislative Session opened with some major tasks on policymakers’ to-do lists. By tradition, this was a year when policymakers normally put together a capital investment package, commonly called the “bonding bill”, that invests in infrastructure projects across the state. More unexpectedly, the December 2017 passage of the federal tax overhaul raised substantial questions on how to update the state’s tax code in accordance with Minnesota values of fairness and fiscal responsibility. And a projected $329 million surplus created opportunity to make state investments this year, in addition to those made in the two-year state budget passed last year.

However, when the three months of the legislative session came to an end, the Legislature and Governor Mark Dayton reached agreement on only one of the three major items. A bonding bill was passed, authorizing $1.6 billion in projects including transportation, higher education infrastructure, water quality, and affordable housing. But intense disagreement in priorities between Dayton and the Legislature resulted in no final agreement on either budget or tax issues.

The contrasting priorities between policymakers are seen in how they would use the projected budget surplus. The Legislature allocated more than half of the surplus to tax cuts and additional transportation spending, while the governor proposed putting the largest portion of the surplus to education. The Legislature’s final offers to Dayton were contained in a nearly 1,000-page supplemental budget bill and in a tax bill, both of which the governor vetoed.

We often look at state policy decisions through the lens of whether they build broader prosperity and improve the lives of Minnesotans across the state. By this measure, the outcomes of the 2018 Legislative Session are a mixed bag. Important opportunities to support Minnesotans striving toward economic security were lost. At the same time, harmful proposals that would have put up new roadblocks were stopped. Below are some examples that represent both the opportunities lost and harm prevented to Minnesotans’ ability to get by and get ahead.

Health care: Among the harmful proposals stopped was one to erect new reporting requirements, which would likely result in more than 20,000 Minnesotans who participate in Medicaid losing their health care. But a major lost opportunity was that the Legislature failed to take action to maintain the provider tax, an important funding source for affordable health care for about 90,000 Minnesotans that otherwise will expire in 2020. With this deadline looming, this will be a critical issue for policymakers to address next year. (Additional coverage of health and human services issues are covered in another blog post.)

Family economic security: A disappointing lost opportunity was that family-friendly improvements to the state’s Child Care Assistance Program supported by both the Legislature and Dayton will not be implemented this year. These proposals would have helped families maintain their child care even as they faced various changes and challenges, and would have increased funding for child care providers. This is another issue the state will need to pick up next year: Minnesota is out of compliance with federal standards and may face a financial penalty. Another harmful proposal prevented by the governor’s veto was a redundant verification system that would have erected new barriers to struggling Minnesotans accessing health care, child care, or food assistance.

Wage standards: A positive for working people is that a proposal to penalize certain tipped workers by freezing their minimum wages, which had been included in earlier bills, was not included in the final supplemental budget that the Legislature sent to the governor.

Transportation: There is broad agreement on the need to invest in the state’s transportation system, but fierce disagreement about which modes of transportation and how to fund them. Road and bridge projects make up a significant part of the bonding bill, but those Minnesotans who rely on transit to get around were largely left out. The Legislature’s proposed constitutional amendment to increase funding for transportation passed the House but did not make it through the Senate. This amendment, if approved by the voters, would have diverted funding that currently is available for other priorities like education, higher education, and economic development.

Education: While legislators proposed additional funding for Minnesota’s schools, their overall education investments were far below what the governor proposed. Dayton proposed investing $169 million in K-12 Education, including $138 million in one-time emergency funding to fill budget deficits for schools throughout the state through an increase to the basic student formula, as well as funding for pre-kindergarten and special education. The Legislature proposed $28 million in their education budget, primarily for school safety, and $50 million in one-time school funding in their final tax bill. Because of the lack of a final agreement on the budget or tax bills, the only additional education funding enacted this year was some school safety funding in the bonding bill.

Taxes: If the state acted to simply conform to federal tax changes, Minnesotans – including families with children, seniors, and people with disabilities – could have seen tax increases. By the end of session, it appeared policymakers had agreed on an approach to updating the income tax for individuals and families that would have prevented these increases. But there was strong disagreement about what kinds of tax cuts to enact and who would benefit from them. The Legislature’s tax bill would have raised taxes on the most struggling Minnesotans over time, which would help pay for tax cuts that benefit others who were better off. Dayton’s tax plan made working people and their families the priority for tax cuts, for example, through a proposed expansion of the Working Family Credit. Updating the tax code will be another issue policymakers will need to tackle next year. In the meantime, many Minnesota individuals and families will see the amount of income taxes they pay basically unchanged, but the process for filing will be more complicated. But by vetoing the Legislature’s tax bill, Dayton prevented changes that would have made the tax system less fair and would have undermined funding that supports our schools, nursing homes, public safety, and other essential community services.

Infrastructure: The bonding bill invests in things like transportation, higher education infrastructure, and water quality. Importantly, it includes $90 million in bonds for affordable housing, and a vital $28 million for mental health crisis centers, which provide emergency shelter for people with behavioral health needs. The bonding bill also includes $25 million for school safety; unfortunately, some of those dollars come out of the state’s budget reserve, weakening the state’s “rainy day fund” that Minnesotans count on during economic downturns or other budget shocks.

Policymakers will have the opportunity once again next year to invest in Minnesotans as they put together the state’s next two year budget, and another crack at many of the issues they wrestled with this session. Under current economic and budget projections, Minnesota will have roughly about a $300 million projected surplus at the start of the next biennium. We’ll be advocating for wise investments in a broader prosperity that reaches all Minnesotans.

-Clark Goldenrod and Nan Madden

Posted in Budget Proposals, Child Care, Constitutional Amendments, Education, Health Care, Housing, Taxes, Transportation | Leave a comment

Health and Human Services changes in vetoed Supplemental Budget Bill were a mixed bag

May 20th marked the closing of the 2018 Legislative Session, which was capped off with Governor Mark Dayton vetoing the Supplemental Budget Omnibus Bill (Senate File 3656) just three days later. This veto means that important changes to support affordable child care will not become law; however, it also means that harmful provisions to add more barriers to affordable health care, child care, and food assistance will also remain on the cutting room floor.

Policymakers set the state’s two-year budget in 2017. This year, lawmakers had the ability to adjust that budget and determine what to do with a modest surplus. Ultimately, the Legislature passed a wide-ranging budget and policy package that spanned more than 980 pages, and addressed issues from traffic violations to health care requirements.

Positive provisions in the Supplemental Budget Omnibus Bill included important family-friendly changes to Minnesota’s Child Care Assistance Program. These changes would have been paid for by new federal funding, and supported families experiencing homelessness; allowed families to retain their child care assistance as they made the transition off Minnesota’s welfare-to-work program; helped families who move between counties keep their child care assistance; and increased the reimbursement rate child care providers receive for their important services.

The bill also included provisions that addressed a pending 7 percent rate cut for some providers who care for people with disabilities; some investments to address the opioid crisis; an increase in chemical dependency provider rates intended to expand access to substance abuse treatment; and some language seeking to address abuse against vulnerable adults living in long-term care settings.

However, the bill also contained language that would have added unnecessary barriers to health care, child care, and food assistance. This bill would have required the Department of Human Services to hire a third-party vendor to double-check the eligibility of Minnesotans who have already been determined to be eligible by the state. People seeking these basic supports often experience unstable housing, juggle multiple jobs, or have unreliable transportation — all things that make it harder for vendors to get in touch with them to confirm, for the second time, that they are eligible for these essential supports.

The bill failed to repeal the sunset of the provider tax, putting health care for about 89,000 Minnesotans at risk because the state will lose more than $900 million in the FY 2020-21 biennium. The provider tax amounts to more than half of the Health Care Access Fund’s revenue, which supports affordable health care.

The governor cited both process and policy objections to the Supplemental Budget Omnibus Bill in his veto letter. According to the Dayton, these objections, including the failure to meaningfully address the abuse of vulnerable adults and the opioid epidemic, outweighed the bill’s positive provisions on issues such as school safety and child care.

Another positive outcome of the session is that the state did not enact new documentation requirements that likely would have resulted in taking health care away from over 20,000 Minnesotans. At the beginning of session, the House and Senate quickly moved proposals to require people who use Medical Assistance, Minnesota’s version of Medicaid, to submit paperwork showing how much they work, or documentation from a doctor on why they can’t work, in order to continue to receive health care. Sorting through the piles of paperwork that would have been required by this proposal was estimated to cost Minnesota counties more than $160 million every year once fully implemented.

Policymakers will have a second bite at the apple on these issues. The 2019 Legislative Session will be focused on setting the next two-year budget. Be on the lookout for continuing conversations to either create new barriers aimed at limiting essential supports, or to invest in strategies that expand Minnesota’s economic opportunities.

-Sarah Orange

Posted in Health Care, Human Services | Tagged , , , , , , | Leave a comment

Refugees important to Minnesota’s workforce

Employers who hire refugees see lower turnover and choose from a wider pool of potential employees. That’s what a new report from the Fiscal Policy Institute and the Tent Partnership for Refugees finds. This finding is especially relevant for a state like Minnesota with both a tightening labor market and a history of welcoming refugees. Some 18,800 refugees have been placed here in Minnesota over the past 10 years, most to the Minneapolis-St. Paul metro area.

The report, Refugees as Employees: Good Retention, Strong Recruitment, comes at a time when President Donald Trump’s administration is cutting back on refugee resettlement, despite the record number of refugees around the world. We know that refugees do well in the U.S. once they have time to settle in, and this report shows that refugees are good for employers too.

The new report is based on over 100 interviews of employers of refugees, refugees, resettlement staff, and others around the country, as well as existing data sources like the U.S. Census’s American Community Survey. Here are some of the findings:

  • Nearly three-quarters of the firms surveyed saw lower turnover rates among their employees who were refugees than for their company overall, and these lower turnover rates were present across industries. For example, in manufacturing, average annual refugee turnover was 4 percent, compared to 11 percent overall.
  • Lower turnover was good for companies. The report notes that the cost to replace an employee was about one-fifth of that worker’s salary. That’s more than $5,000 for the typical worker covered by the report’s surveys. The savings from lower turnover can be invested instead in the business.
  • Employers often saw overall improvements in their workplace after refugees were hired. For example, making hiring choices with the expectation of doing some on-the-job training opened opportunities to more refugee and non-refugee candidates. Similarly, making instructions clearer to workers who don’t speak English well was also helpful for native English speakers.

Refugees are important members of our communities and our economy. This report is a good reminder that refugees come to this country fleeing dangerous circumstances, and settle in and make important contributions to our workforce.

-Clark Goldenrod

Posted in Economy, Immigration | Tagged , , | Leave a comment

New proposed rule from Trump administration would harm New American families

Earlier this spring, a proposed new federal rule was released that would make it harder for New Americans to thrive and to fully contribute to our communities and our economy.

This rule goes against our country’s basic values. Our government has held that certain supports, such as those that improve health, should be available to everyone who needs them. The rule also ignores how New Americans are contributing to our communities, as our neighbors who work, pay taxes, and learn alongside us. And this proposal would make it even harder for New Americans on their path to citizenship, and folks moving to the country trying to find new opportunities.

Currently, when people apply to move to the United States or apply to adjust their immigration status, like applying for a green card, the government determines whether that person has “public charge” status. This status is based on a number of factors, including age, health, family status, financial status, and skills, but also includes use or potential use of public supports. Currently only two types of supports are counted to determine “public charge” status: cash assistance (like Temporary Assistance for Needy Families, or TANF) and use of long-term care facilities. Having “public charge” status can make individuals ineligible to come to the United States or ineligible for lawful permanent resident status.

The new proposed rule would put many New Americans in an untenable position knowing they could harm their goals of getting a green card if they access basic supports that help them and their families to make ends meet. It would drastically expand what the government considers to make a “public charge” determination. The draft rule proposes adding supports like the Children’s Health Insurance Program (CHIP), Women, Infants, and Children nutritional assistance (WIC), and the Earned Income Tax Credit (EITC). In addition, it would take into account whether U.S. citizen children use these supports.

This proposal would likely create confusion around who can access basic supports that many of us turn to in times of need. Those harmed include the New Americans who are unsure whether they can still qualify for basic services, like food and housing assistance, as well as many children who might not get the supports they need to remain healthy and succeed in school.

This proposed rule is a mistake. New Americans are vital contributors to our communities, and they should be able to receive basic supports so that they can thrive and build our economy. The draft rule is expected to be included in the Federal Register by July. You will have an opportunity to have your concerns heard and comment on this proposal. Stay tuned.

-Clark Goldenrod

Posted in Immigration | Tagged , , , | Leave a comment

Legislature’s final tax bill contains same harmful provisions as previously-vetoed bill

Last week, we evaluated the Legislature’s tax bill and found that it needed improvement. Unfortunately, very little was changed, and the tax bill the Minnesota Legislature passed Sunday contains the same unfair and unsustainable provisions as the version that Governor Mark Dayton vetoed on May 17.

The big tax challenge this year was to respond to the federal tax bill without repeating its mistakes. As the end of session neared, there appeared to be agreement on how to approach the individual income tax: Minnesota would update our tax code in ways that protected Minnesotans – including families with children, seniors, and people with disabilities – from the tax increases they would see if Minnesota simply conformed to federal tax changes. That consensus is included in the new tax bill, House File 947.

But House File 947 includes other provisions that undo some of the good done by that agreed-upon approach to conformity. Plus, the bill’s tax cuts leave out the Minnesotans who are struggling the most to get by, and it is not fiscally sustainable.

Minnesotans would see tax increases over time under this bill because it would switch to “chained CPI”, a slower-growing measure, to make yearly inflation adjustments across the tax code. As a result, the standard deduction, family exemptions, the Working Family Tax Credit, the Child and Dependent Care Tax Credit, and other tax benefits would be worth less over time. Minnesotans would only be protected from tax increases from conformity decisions temporarily. Minnesotans would pay $60 million more in the FY 2020-21 budget cycle from the change to chained CPI, and its impact will grow larger each additional year.

Those Minnesotans who struggle most to make ends meet will pay more over time, but will not benefit from the bill’s tax cuts. That’s because an estimated 1 in 5 Minnesota households don’t benefit from the bill’s income tax rate reductions because they don’t have enough taxable income after subtracting their deductions and exemptions. And to get the maximum amount of tax cut, a family of four would need to earn about $180,000, which puts them in the highest-earning 10 percent of Minnesota households.

The bill would cut Minnesota’s corporate tax rate by 0.7 percentage points, on top of the 40 percent rate cut corporations received in the federal tax bill. Both the income and corporate tax rate reductions “phase in” over time, which means they take several years to fully take effect, masking their ultimate cost. In addition, the bill would create additional future problems by using some temporary revenue increases – such as provisions related to “deemed repatriation” that end after eight years – to help pay for permanent tax cuts.

Mostly what’s different about House File 947 are its components related to the funding challenges many Minnesota school districts are facing. Unfortunately, the only additional money for schools in the bill is $50 million that comes out of the state’s budget reserve. This “rainy day fund” is where the state sets dollars aside so that in the next economic downturn, Minnesotans can still count on essential services. In good times, states should build their reserve funds, and despite good progress over the past number of years, Minnesota’s reserve isn’t yet at the recommended target. The budget reserve shouldn’t be tapped into whenever a short-term need comes along. It’s worth remembering the kinds of financial and other pressures Minnesota families, seniors, and children faced during past recessions when the state had inadequate budget reserves.

The bill has other short-comings as well. The lack of any expansion of the Working Family Credit is one. But I suspect if Dayton vetoes this bill, as he has suggested, it will be because of what is in the bill, not only what’s missing.

-Nan Madden

Posted in Taxes | Tagged , | Leave a comment