The $900 million state budget surplus projected in today’s state February Forecast in part reflects the fact that our state economy is improving, although less robustly than projected in November. It also underlines the fact that Minnesota is not shielded from the ups and downs of the national economy.
There’s more to do to build a broader and more durable prosperity in Minnesota. A critical question for the legislative session ahead is whether policymakers will make sustainable tax and budget choices that prioritize the concerns of everyday Minnesotans, like being able to afford child care, a college education and other keys to family economic security; or whether instead they will pass large, poorly targeted tax cuts, even though that has not been a successful economic growth strategy.
In this uneven economic recovery, too many Minnesota families struggle to make ends meet. Tight family budgets make it hard for Minnesotans working for modest wages to pay for child care, education and training to build their skills, reliable transportation, and other essentials to succeed in the workplace and get ahead. Not only that, but low- and modest-income Minnesota households on average pay a larger share of their incomes in Minnesota taxes than those with the highest incomes.
Given these realities, tax policies that support these Minnesotans’ work efforts should be a priority this session.
That should start with expanding the Minnesota Working Family Tax Credit, which encourages and supports work, makes Minnesota’s taxes fairer, helps working people all across the state meet their basic needs, and gets children off to a stronger start. More than 12 percent of Minnesota tax-filing households receive this tax credit; 48 percent of them live in Greater Minnesota and 52 percent in the 7-county metro area.
Policymakers should strengthen the Working Family Tax Credit this year by:
- Increasing the size of the Working Family Credit that Minnesota households can receive;
- Making more households eligible by increasing the amount that Minnesotans can earn and still receive the credit; and
- Ending arbitrary age limits so that younger, independent workers ages 21 to 24 can qualify for the credit.
Such steps would build off of both Governor Mark Dayton’s 2015 supplemental budget, which proposed strengthening the credit, and bipartisan interest at the national level in providing an improved credit for workers without children. A boost in the Working Family Credit would be a sustainable, targeted investment with a meaningful impact on working people all across the state.
Another priority for the session should be to enact policies that allow more Minnesota families to afford child care. The high cost of care can leave Minnesota workers on the sidelines. A targeted expansion of the Child and Dependent Care Tax Credit to better reflect today’s costs of child care, combined with increased funding for Basic Sliding Fee Child Care Assistance, would mean more Minnesota parents could succeed in the workforce while their children benefit from stable, reliable care that meets their needs.
Minnesota won’t be able to pursue the path to broader and more durable prosperity if policymakers devote the surplus to expensive and poorly targeted tax cuts. We only need to look to other states, like Kansas, to see that large tax cuts don’t work as an economic development strategy.
This year’s tax debate has started where it left off at the end of the 2015 session, but too many of the choices on the table go in the wrong direction. Last year’s House tax bill, for example, contains a number of “phased in” tax cuts that grow larger and larger over five or more years. The proposal to expand the Social Security exemption would have cost $641 million in FY 2018-19, and repealing the statewide property tax would have cost $1 billion. Putting those figures up against the $1.2 billion surplus projected for FY 2018-19 in today’s forecast illustrates the fiscal irresponsibility of phasing in large tax cuts over time.
And along with proposed cuts to the estate tax, such proposals would ultimately provide the largest tax cuts to higher-income Minnesotans and highest-value business properties, reversing the state’s recent progress in making Minnesota taxes more equitable among people of different income levels.
Other states have tried to bring economic growth through large tax cuts, and little of the benefit trickled down. Instead, policymakers should focus on how more Minnesotans across the state can be part of a durable economic prosperity.