Governor Waltz unveils $65 billion two-year budget plan, including direct checks and major investment in education

ST. PAUL, Min. — Gov. Tim Waltz on Tuesday unveiled his $65 billion state budget plan over the next two years, a sweeping plan that will make significant investments in his key priorities and revive his call 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 electric vehicle charging infrastructure and more.

“These are the types of things that make sense for 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 level they’ve been. And at the same time, reducing the tax burden on working Minnesotans,” Walz said. “I am excited about this budget. I am proud of the people of Minnesota. I think it builds on a long tradition of progressive taxation and investment in things that matter.”

Waltz has released parts of his budget recommendations over the past few days, but on Tuesday he and other administration officials focused on a set of tax proposals they hailed as historic. Part of that includes his so-called “Walz checks,” an idea he first proposed last year to return some of the colossal budget surplus — totaling $17.6 billion, according to the latest budget estimate — to taxpayers.

“People can make good decisions for themselves, and some of their surplus should be put back into their hands,” the governor said Tuesday.

But the scope of these direct, one-time payments has changed over time. In his latest presentation, Walz lowered the income limits that determine who qualifies. If lawmakers sign them, a filer making $75,000 or less would get $1,000. For families making $150,000 or less, that check will double to $2,000 plus $200 in dependents up to $2,600.

That would affect 2.5 million Minnesota households, according to an estimate from the governor’s office. DFL leaders have not embraced previous plans for rebate checks.

Minnesota residents could receive checks from the state

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Before the rebate checks reach the pockets of Minnesotans, however, state lawmakers still have to pass them.

“Legislators are going to want some things that the governor doesn’t care about, so there’s going to be some trade-off,” said Larry Jacobs, a politics professor at the University of Minnesota. “I think there will be an agreement eventually, but at the beginning of the session, the tax cuts are one of the flash points.”

The tax package also includes tax credits to help families afford rising child care costs and additional credits for low-income Minnesotans in an effort to reduce child poverty. He also supports $219 million in Social Security tax cuts, which his office says would affect 350,000 households, although that plan does not make all of those benefits tax-free.

Those recommendations mark a starting point for the Legislature, which will ultimately write the state’s spending plan before the end of the session. Many of Walz’s priorities mirror those of DFL lawmakers in power in the capital, creating an environment more conducive to passing the governor’s agenda in his second term.

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

Those tax increases drew the ire of Republicans, who are powerless in the minority to stop the DFL’s agenda, but were quick to criticize the governor’s plan. GOP leaders said Democrats had broken campaign promises to completely exempt Social Security from the state income tax, a top Republican priority that has the support of some newly elected Senate Democrats and was part of a deal between legislative leaders and the governor last spring that ultimately fell apart.

“Huge state growth of agencies. Huge state tax hike. This is a very, very troubling budget,” said Senate Minority Leader Mark Johnson, R-East Grand Forks.”

Republicans also hoped the governor would consider cutting income tax rates, arguing the $17.6 billion surplus was a sign the state was 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 initial funds needed to start a paid family and medical leave program over the next few years, as well as state support for a regulatory framework if lawmakers legalize recreational marijuana.

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