With Unexpected Budget Surplus, Minnesota Legislature Passes Bill Featuring $1B in Tax Cuts

MINNEAPOLIS (AP) — After a session marked early on by talk of possible tax increases, the Minnesota Legislature was on track Monday to hand out serious tax relief to unemployed workers and businesses.

The final tax bill agreed to by lawmakers last week features nearly $1 billion in tax cuts over the next four years, including about $650 million in tax relief on federal Paycheck Protection Program loans received by businesses and up to $10,200 in unemployment insurance benefits received by people who lost their jobs due to the pandemic.

“Many have suffered as they have come through the pandemic,” said Republican taxes committee chair Sen. Carla Nelson, of Rochester. “It’s important that we empower Minnesotans and spark economic growth, and that’s what this tax bill does, and that’s why I think it came together.”

It’s a vastly different outcome than might have been expected early this year, when a push for nearly $1 billion in tax hikes on wealthy Minnesotans and corporations sought by House Democrats and Gov. Tim Walz was mostly wiped away by an unexpected budget surplus plus billions in aid from the federal government. Senate Republicans pledged not to agree to any tax increases at the start of the legislative session in January.

Beth Kadoun, the Minnesota Chamber of Commerce’s vice president of tax and fiscal policy, said the federal loans were a “lifeline” to businesses that used the loans to pay employee salaries while being closed due to the pandemic. The provision to make the loans tax-free, as Congress did last year, prevents further strife to struggling businesses, she said.

“When they took those loans it was with the understanding that there wasn’t going to be taxes on it, so that really caught a lot of businesses off-guard when they found out it might not be taxable at the federal level but in the state of Minnesota you might have to pay a tax on it,” she said.

While about 85% of the package deals with pandemic relief, other provisions include $20 million that would go to local governments for youth homelessness prevention, an extension of the working family tax credit to include 19- and 20-year-olds, and an affordable housing tax credit for workforce housing, single-family homes and communities under 5,000 residents.

Nelson said the legislation was “good to go” after she and House taxes committee chair Rep. Paul Marquart met with Walz and finalized the details of the bill. Democratic House Speaker Melissa Hortman, of Brooklyn Park, said last week that the tax bill would likely be the last bill to pass off the House floor as a means of leverage in budget negotiations with the Republican Senate.

Lawmakers convened for a special legislative session last week to finalize the budget after Walz, Hortman and GOP Senate Majority Leader Paul Gazelka, of East Gull Lake, agreed on broad targets for the two-year, $52 billion budget at the end of the regular session last month. Failure by the governor and legislators to agree on a budget by July 1 will result in at least a partial state government shutdown.