Lawmakers, Walz have a deal on taxes, spending

Gov. Tim Walz and legislative leaders have agreed to the broad outlines of a deal that would divide up the state surplus evenly between tax cuts, spending increases and money put into reserve, according to two sources with knowledge of the negotiations.

Leaders of the DFL-majority House and GOP-controlled Senate and DFL governor have agreed to use $4 billion for tax cuts and $4 billion on spending increases during the next three years, while leaving $4 billion in the bank to soften the blow of a potential recession.

If the agreement is passed and signed, they would spend $1.6 billion and cut taxes by the same amount during the next fiscal year, which begins July 1. During the two-year budget cycle that begins in July 2023, they’ll spend $2.4 billion and cut taxes by the same amount, according to a document shared with the Reformer and authenticated by sources with knowledge of the deal.

The agreement is a surprising show of bipartisan comity during what promises to be a tumultuous election year, with all 201 legislative seats up for election, new district boundaries because of redistricting and Walz’s first reelection campaign.

The divided Legislature must now fill in the details, which won’t be easy as lawmakers race to finish before their May 23 deadline, after which only Walz can call a special session.

For months lawmakers on both sides have been posturing about what to do with the $9.2 billion surplus, with Republicans proposing permanent tax cuts and Democrats seeking spending increases, especially on education.

A early draft of spending plans — though not yet finalized — showed $1 billion of the new spending going to education; $1 billion going to health and human services; and, $450 million to public safety, with smaller increases in other areas. That could change as committees meet and work out details.

A taxes conference committee — comprising Democrats and Republicans from the House and Senate — will work out the details of a tax cut plan. Republicans want permanent income tax cuts and an end to state taxes on Social Security. Walz wants to send checks to Minnesotans, which he’s calling “Walz checks.” It’s unclear how the tax cuts will be divvied up.