Jeff Johnson is offering Minnesotans an ambitious plan to cut taxes and restrain spending, aiming to put the state on a starkly different path after eight years of a Democratic governor.
“Our taxes are too high in Minnesota. We’re in the top 10 of many of the major tax categories, and I don’t think that’s where we need to be as a state,” said Johnson, the Republican candidate for governor. “So I would have a goal of reducing taxes.”
Johnson wants to enact income tax cuts, shield Social Security benefits from state tax collectors, eliminate a major statewide business tax and allow a tax on health care providers to expire.
In doing so, Johnson would push Minnesota in the direction of neighboring states like Wisconsin and the Dakotas. In recent years, Republican governors and legislatures in those states have reduced taxes, slowed spending and weakened labor unions as they try to recruit and retain businesses — amid the strains placed on Midwestern economies by globalization and technological change.
Johnson’s Democratic opponent, U.S. Rep. Tim Walz, says that Minnesota’s robust investments in schools and universities, health care, transportation and the environment have created the conditions for the state’s broadly shared prosperity — including the highest per capita income in the Midwest, outside of oil-rich North Dakota.
“We get what we pay for,” Walz said, while emphasizing he wants to use taxpayer dollars wisely. “We have the highest quality schools. Our citizens live longer and have better life outcomes. We could shoot to become Mississippi, but I don’t think that’s where Minnesotans want to go.”
As Minnesotans decide who will replace Gov. Mark Dayton, they will choose between these drastically divergent paths.
The Johnson path views government as a bloated impediment to prosperity that should be pared back, freeing up money for people and businesses to invest or use as they wish.
The Walz path views government as an important catalyst for economic growth by providing skilled workers and transportation, health care and social infrastructure to help business and people thrive.
Minnesota is currently one of the 10 highest taxed states in the nation, according to an analysis by the nonprofit group Minnesota Center for Fiscal Excellence. Although sales and property taxes are in the middle of the pack, taxes on incomes and corporate profits are among the highest.
Walz and Dayton say the payoff is a parade of rankings that place Minnesota at or near the top: high school graduation rates; ACT scores; college-educated residents; personal income relative to cost-of-living. And, they argue, government and the services and amenities it provides are crucial to nurturing and attracting the skilled workers that power a diverse economy, well-stocked with Fortune 500 companies in agribusiness, retail, insurance, health care and manufacturing.
Johnson says government can achieve the same objectives with fewer tax dollars.
“I hear an argument on the other side, that there’s not a penny of fat, inefficiency or poor programming in state government,” Johnson said. “I think that’s just silly, and I think most Minnesotans recognize that.”
His tax cut proposals would cost the state treasury significant money. A cut in the lowest income tax bracket, from 5.35 percent to 4.35 percent, which Johnson said would be his first objective, would reduce revenue by $651 million per year, according to the Department of Revenue. A 1 percentage point cut on all four brackets would reduce revenue by nearly $1.7 billion.
Given the two-year budget cycle of about $46 billion, cutting incomes taxes across the board by 1 percentage point would require a 7.4 percent budget reduction. Cutting just the lowest bracket would require a 2.8 percent budget decrease.
Shielding Social Security benefits from taxes would reduce revenue by $387 million and would jump an additional 8 percent per year due to the state’s aging population, according to the Department of Revenue. Eliminating the statewide business property tax would reduce tax dollars to the state by another $785 million annually. Ending a tax on health care — used to fund medical programs for the poor and those with disabilities — at the end of 2019 will reduce revenue by another $750 million in 2020.
While Republicans in Congress and President Donald Trump were able to finance their 2017 tax cut bill by adding to the deficit, that’s not an option in Minnesota: The state Constitution requires the governor and lawmakers to balance the state budget. Reducing spending would be a political challenge because progressive interest groups at the Capitol are practiced at mobilizing opposition to cuts they often portray as cruel.
Johnson said his first budget would be smaller than the current one.
Because of population growth and higher inflation in areas where government does most of its spending — education, higher education and health care — even a freeze in spending would require some cutting, according to the Minnesota Management and Budget (MMB), which is the state government’s budget office, and is currently led by a Dayton appointee.
With more than 20,000 new students and legally mandated growth in special education funding, school districts will be down $800 million if the state education budget remains flat, according to MMB.
When he was asked if areas of the budget like education would be protected from his budget cutting, Johnson replied, “Nothing is off the table.”
Reining in other areas of the budget can be equally challenging. Health and human services is expected to grow by $1.8 billion in the next biennium, largely because of health care inflation. This leaves difficult choices for a putative Johnson administration: Reduce payments to health care providers, reduce benefits or reduce the number of enrollees.
And that won’t be easy, because more than half of the state’s Medical Assistance money is being spent on people who can’t care for themselves: 17 percent of enrollees are elderly or people with a disability, and they account for about 60 percent of Medical Assistance spending, according to the Department of Human Services (DHS).
Johnson cited a 2016 report from the Office of the Legislative Auditor, which found the state was paying out hundreds of millions of dollars to care for people who were not eligible.
DHS Commissioner Emily Piper, also appointed by Dayton, said in a statement, “Although we disputed the methodology used in the 2016 Legislative Auditor’s eligibility report at the time, we have made systems improvements and continue to work with counties to more accurately determine eligibility.”
Johnson said he’s ready to dig in and find extra money that can be distributed to Minnesota taxpayers.
“Look at documented waste and inefficiency in government,” Johnson said. “There are plenty of places where we could save money. A little competence will go a long way to giving tax relief to people in Minnesota.”