$1B Surplus Used to Cut Minnesota Income Tax

Published On: 12th January 2014

There were smiles in St. Paul when it was stated that the gaining economy resulted in a $1.1 billion surplus for the state of Minnesota, prompting an instant scramble from individuals looking for more spending and tax savings.

The surplus has a positive impact in two areas: public schools will receive full repayment for the IOUs that the state accumulated during tougher times and the airport repairs account that money was pulled from five years ago will be paid back. This will leave $825 million for lawmakers to work with this coming year.

Governor Dayton told the media that if the surplus holds up when estimates are updated in February, he will recommend that more than half of the money is used for Minnesota income tax cuts. This includes repealing some of the sales taxes that were adopted in the spring of 2013.

This hopeful prediction comes less than six months into the new two-year budget, which means there is plenty of time for the needle to move, but tax collections are more robust than they were predicted to be and spending is lower. The surplus represents what would be left if everything stays on track.

The state budget commissioner said that the numbers should be interpreted as money in the ban.

The projection is based off of a lot of economic data that shows the state economy has gained momentum. The state unemployment rate has reached a six-year low and it is much better than the national average. After a period of time with no wage growth, it has now risen by 4 percent. Corporate profits are exceeding expectations. Even customer spending is something that is seeing an increase, as is business investment and hiring.

There are some cautionary notes about the housing market and the instability that exists in the political realm of Washington. The leaders of both parties have called for restraint, as they have been wrestling with deficits for years.

Regardless, the good news has been promoted and it is being taken as a sign that the state is moving forward.

Dayton has said that he hopes the swing from a deficit in 2012 and then a surplus in 2013 would combat the argument that the Democrats have put the state in danger by raising taxes to head off additional cuts that can allow for priority programs and new spending. Some were worried when the increases were announced, stating that the taxes would put a chill on the Minnesota economy.

The tax plan that was adopted in the spring created a fourth income tax bracket on high incomes and the per-pack cigarette tax was increased. Lawmakers also proposed taxes on warehousing services, farm equipment and telecommunications supplies.

Unless things turn for the worse, which is not expected, the Governor is committed to eliminating the new sales taxes and allowing middle-class taxpayers claim federal breaks on their state income tax. These two changes alone would cost approximately $435 million.