Minnesota's divided Legislature clashes on tax cuts, frontline worker pay

Minnesota Republicans in the Senate rolled out a proposal on Thursday to spend $3.5 billion of the state's budget surplus on permanent tax cuts this year, hours before House Democrats voted to send $1 billion in checks to hundreds of thousands of workers on the front line of the pandemic.

Thursday's action at the Capitol underscored a fundamental disagreement between Minnesota's divided government this session: should the state give back most of a historic $7.7 billion surplus to taxpayers, or should some money be directed toward workers and others hit hardest by the pandemic?

"We don't think it's fair to pit one worker against another," said Senate Majority Leader Jeremy Miller, R-Winona, about their tax cut plan. "We are proposing this tax relief package that provides all Minnesota workers with significant tax relief that is permanent and ongoing, not one time."

Republicans said their tax cut bill, the largest in state history, would reduce Minnesota's first-tier income tax rate from 5.35% to 2.8%, amounting to roughly $1,000 in savings each year for a family making $100,000. An individual making $37,000 would pay roughly $500 less per year, according to Republicans.

"Coming on the heel of surplus after surplus after surplus, it is clear that government is taxing Minnesotans too much. Our reserves are full. The surplus is nearly $8 billion," said Senate Taxes Committee Chair Carla Nelson, R-Rochester. "Government is doing great, but the problem is Minnesotans are struggling."

In addition, their plan would eliminate taxes on social security income, a long-sought GOP tax cut priority. Combined with a fast-tracked bill to spend $2.7 billion to replenish the state's jobless fund and stave off tax increases on businesses, the GOP tax proposals would use up much of the state's projected surplus this year.

Lawmakers will get a new budget forecast Monday that is expected to change the total surplus amount. Recent monthly revenue projections indicate the surplus might grow.

But some lawmakers were urging caution on Thursday following Russia's invasion into Ukraine, worried the state's financial picture could change dramatically amid global turmoil. The GOP plan is estimated to cost $8.5 billion spread out over three years.

"It needs to be balanced, we need to make sure we don't set ourselves up for a deficit in the future. We're not going to have a $7.7 billion surplus every year," said Senate Minority Leader Melisa López Franzen, DFL-Edina. "We've already seen what the markets are doing, so we have to be very cautious and very prudent with the surplus."

Democrats in the House and DFL Gov. Tim Walz are pushing for one-time tax relief and rebates, along with spending on programs such as paid family medical leave and efforts to reduce the cost of childcare for families.

They put the focus Thursday on their plan to send up to $1,500 checks to 667,000 people who had to go to work work at the height of the pandemic, while others stayed home. Health care employees, janitors, grocery store workers and others would be included in their bill.

"There's not one of us that hasn't been touched by the work that has been done and continues to be done by our frontline workers," said Rep. Cedrick Frazier, DFL-New Hope, who is sponsoring the bill in the House. "This recognition is long overdue and is only a small gesture to honor those that we have appropriately called heroes."

Their $1 billion proposal for worker aid was bumped up from $250 million that lawmakers agreed last session. The parties have been divided since last year over who should be included in the list of frontline workers, with Republicans favoring a smaller pool of nurses, long-term care and other health care workers. Senate Republicans haven't introduced a proposal yet this session to provide frontline worker aid.

The proposal, which has Walz's backing, passed off the House floor Thursday on a 71-61 vote.