Lowest-income Minnesotans hit hardest by Gov. Tim Walz's tax plan, analysis shows

Gov. Tim Walz's plan to increase taxes would hit the lowest-income Minnesotans the hardest, according to a new state analysis that could frame his push for more money to fund new health, infrastructure and school initiatives.

Minnesotans on the bottom half of the income ladder would absorb an average 9.9% tax increase, according to the analysis by Walz's own Department of Revenue. The upper half of Minnesotans would pay an additional 5.9%, although the wealthy would wind up paying far more in actual dollars and pick up a much larger share of the total tab than lower-income Minnesotans, according to the report.

The overall state and local tax burden for Minnesotans would rise from 11.63% of income to 12.39%, or about 75 cents for every $100 earned, or $750 on $100,000 in income.

The analysis added fresh fuel to an already raging debate over taxes and state government spending, with Republicans unveiling a new tax plan Wednesday that would cut taxes for many Minnesotans while eliminating some business deductions. The tax study also comes as the nation's only divided Legislature enters the final weeks of its session, with a May 20 deadline to break a deadlock and agree on two-year budgets for schools, health and social programs, parks, courts and other services.

The Walz administration reacted swiftly to the Revenue report, pointing out that lower-income Minnesotans would benefit the most from his agenda of higher spending on schools, health care and roads.

"Minnesotans agree that every child deserves a high-quality education, that we need to lower the cost of health care and that we need to fix our crumbling roads and bridges," Walz spokesman Teddy Tschann said in a statement. "Gov. Walz proposed a budget to improve the lives of Minnesotans and explained exactly how he'll pay for it."

The study showing higher taxes for the neediest Minnesotans arrives at an inopportune time for both Walz and Minnesota House Democrats. Republicans, who control the state Senate and aim to block the Walz tax increases, pounced on the report to attack the DFL spending plans.

"Democrats can talk all they want about the rich paying their fair share, but now we know it's just a slogan," said state Sen. Roger Chamberlain, R-Lino Lakes, chairman of the Taxes Committee.

Chamberlain's tax bill, which is expected to hit the Senate floor next week, would lower the second-lowest income tax bracket from 7.05% to 6.8%, with another small reduction coming in 2022.

The overall fiscal effect of the bill, however, would be zero. For every dollar it costs the state in lost revenue, it would add a dollar, mostly by eliminating some business deductions.

Chamberlain's own plan leaves untouched the lowest tax bracket and adds nothing to the working-family tax credit, which is aimed at the working poor.

Chamberlain said Wednesday that the Republican plan would "protect the taxpayer."

"It is their birthright to have jobs and opportunity, to work hard and keep what they earn and provide for themselves and their communities," he added.

Walz has criticized Senate Republicans for not providing specifics on how they would balance the state budget over the next few years, noting that they would allow a 2% tax on health care providers to expire.

The Walz administration pointed to several mitigating factors in the new tax study. The analysis treats the tax on health care providers as a new tax, even though the tax is already in place. The tax is scheduled by law to expire at the end of the year; Walz has proposed extending it.

Democrats also argue that lower-income Minnesotans would be the main beneficiaries of the tax because it helps fund public health insurance programs targeted at that group. Allowing the provider tax to expire would create a nearly $1 billion deficit in the fund used to pay for these programs by 2023, according to the administration.

"The investments we begin to make are targeted at the lowest-income Minnesotans who are trying to get into the middle class and stay there," said Cynthia Bauerly, commissioner of the Department of Revenue.

The biggest hit to lower-income Minnesotans: A 20-cent-per-gallon gas tax that treats all Minnesotans the same, regardless of income.

Walz has argued that drivers are already racking up big maintenance bills due to shoddy roads.

Walz also sought to offset the regressive effects of the gas tax by increasing the working family tax credit by $100 million. But the Department of Revenue analysis shows it was not enough to hold down the overall tax increase on the lowest-income Minnesotans.

Rep. Greg Davids, R-Preston, who initially requested the analysis, said the findings show the Walz tax plan is "outrageous and unacceptable."

For every $100 they earn, Minnesotans on the bottom half of the income ladder would pay well more than an extra dollar in taxes. The 10% of Minnesotans on the lowest rung of the income ladder would pay an extra $2.37 in taxes for every $100 they earn.

J. Patrick Coolican • 651-925-5042