Gov. Walz reveals $65 billion two-year budget plan, including direct checks and big education investments

ST. PAUL, Minn. --  Gov. Tim Walz on Tuesday revealed his $65 billion state budget blueprint for the next two years, a sweeping plan that would make significant investments in his key priorities and revive his request to send one-time checks to taxpayers. 

It includes record funding for K-12 education and additional money for affordable housing, mental health, public safety, building out electric vehicle charging infrastructure and much more.   

"Those are the types of things that make sense to Minnesota at a time when we have a budget surplus, when it's time to invest, when it's time to keep our reserves at the highest they are they've ever been. And at the same time,reducing tax burdens on working Minnesotans," the Walz said. "I'm excited about this budget. I'm proud of Minnesotans. I think it builds on a long tradition of progressive taxation and investments in things that matter." 

Walz announced sections of his budget recommendations over the last several days but on Tuesday, he and other administration officials focused on a slate of tax proposals they hail as historic. A slice of that includes his so-called "Walz checks," an idea that he first suggested last year to return some of the colossal budget surplus—totaling $17.6 billion, according to the latest budget forecast—to taxpayers.   

"People can make good decisions for themselves and a portion of their surplus needs to get back into their hands," the governor said Tuesday. 

But the scope of those direct, one-time payments has changed over time. In his latest pitch, Walz slashed the income limits determining who qualifies. If lawmakers sign off on them, a single filer making $75,000 or less would receive $1,000. For families making $150,000 or less, that check would double to $2,000, plus $200 per dependent up to $2,600. 

This would impact 2.5 million Minnesota households, according to an estimate from the governor's office. DFL leaders haven't embraced previous plans for rebate checks.

Before the rebate checks reach Minnesotans' pockets though, state lawmakers still have to pass it.

"The legislators are going to want some things the governor's not keen about, so there'll be some horse trading," said Larry Jacobs, a politics professor at the University of Minnesota. "I think there will be an agreement eventually, but as we start the session, tax cuts is one of the flashpoints."

The tax package also includes tax credits to help families afford the soaring costs of child care and additional credits for low-income Minnesotans in an effort to reduce child poverty. He also supports $219 million in tax cuts on social security benefits, which his office says will impact 350,000 households, though this plan stops short of making all of those benefits tax-free. 

These recommendations mark a starting point for the legislature, which will ultimately write the state's spending plan before the session's end. Many of Walz's priorities mirror those of DFL lawmakers in power at the capitol, creating an environment more favorable to passing the governor's agenda in his second term.  

But there are tax increases, too. Walz suggests a 1.5% surcharge on capital gains and dividends of individuals, trusts, and estates over $500,000 and 4% for that income if it exceeds $1 million. Buried in a 200-plage document, the governor also recommended a 1/8th of a cent sales tax increase in the seven-country metro for regional transit.  

Those tax increases drew the ire of Republicans, who are powerless in the minority to stop the DFL agenda but quickly criticized the governor's plan. GOP leaders said Democrats broke campaign promises on fully exempting social security from state income tax—a top priority for Republicans that has the support of some newly elected Senate Democrats and was part of an agreement between legislative leaders and the governor last spring that ultimately fell apart.  

"Huge government growth in agencies. Huge government growth in taxation. This is a very, very concerning budget," said Senate Minority Leader Mark Johnson, R-East Grand Forks." 

Republicans also had hoped the governor would consider income tax rate cuts, arguing the $17.6 billion surplus is a sign the state is overtaxing its residents.  

"If we can't cut taxes now, when can we?" said House Minority Leader Lisa Demuth, R-Cold Spring.  

Also among the hundreds of provisions outlined in the document are the initial funds needed to get a paid family and medical leave program off the ground in the next few years, and state support for a regulatory framework should lawmakers legalize recreational marijuana.  

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