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Minn. House Passes $1 Billion in New Taxes Despite Already Record High Tax Revenue

Minnesota Capitol building
Minnesota Capitol building / Wikimedia Commons
• May 4, 2019 4:55 am

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Included in the Omnibus Transportation Finance Bill (HF1555) approved Monday night by the Minnesota House is more than $1 billion in gas tax increases, sales taxes and licensing fees to pay for infrastructure improvements. The 74-58 in favor was mostly along party lines.

Critics and a state analysis say the tax hikes will hurt the poorest Minnesotans the most.

"This massive tax and spend bill punishes Minnesotans multiple times – first at the gas pump and then by increasing the costs of nearly all goods they rely on – from food to clothing to other basic necessities," Jason Flohrs, American for Prosperity-Minnesota State Director, said in a statement.

The bill includes a 20-cent gas tax increase, 5 cents a year for four years, to bring Minnesota's gas tax to 48.5 cents a gallon from 28.5 cents, a 70 percent hike. The non-partisan Tax Foundation said the state would have the fourth-highest in the nation.

"Minnesotans are already some of most heavily taxed people in America," John Phelan, economist at the Center of the American Experiment, said. "With state revenues at near record levels and a projected surplus of $1 billion in the next biennium, there is no justification for making their driving more expensive."

Minnesota’s tax revenue is at a new record high, according to new data released by The Pew Charitable Trusts. Minnesota reported the fifth-highest growth in tax revenue in the third quarter of 2018, taking in 27.2 percent more in tax revenue than it did during the third quarter of 2008.

Only half of the money generated from new taxes imposed by HB1555 "would go toward net new transportation spending, while the rest is used to backfill the shifts to other parts of the budget," Flohrs said.

The first 6.8 cents of the 20-cent per gallon increase replaces current funding. Another portion goes toward tax credits, and another toward the repayment schedule on existing bonds. The remainder would pay for "new" infrastructure investment.

While the governor’s proposal focuses on revenue, it does not address whether or not the tax dollars are being used effectively, AFP notes. According to a 2019 Legislative Auditor’s report, the Minnesota Department of Transportation (MnDOT) has failed to consistently assess whether its funding decisions make good financial sense, stating, "there is little evidence the department systematically analyzes the financial consequences of its decisions."

"If we aren’t spending money or financing projects effectively now, shouldn’t we work to reform those processes before blindly throwing more money at the problem?" Flohrs asks.

AFP points to several studies that show how taxpayer dollars are wasted on inflated costs due to outdated regulatory burdens, a complex and sluggish permitting system, and overly restrictive labor requirements. Reforming the existing processes would save taxpayers money that could otherwise be used to improve the state’s roads and infrastructure programs.

Higher gas taxes are attributed to fuel efficiency, however, Rep. Raymond Dehn, D-Minneapolis, told KARE 11 News. As vehicles became more fuel-efficient, motorists use less gasoline and subsequently pay less fuel taxes per gallon, he said.

"We need to meet that need. Currently we’re not meeting the need, which is one of the reasons the governor proposed the increase in the gas tax that he proposed," Dehn said.

Dehn introduced a bill authorizing the state Department of Transportation to conduct a cost-benefit analysis of phasing in a mileage tax, or a mileage-based user fee, to eventually replace fuel taxes. The proposal is likely to receive backlash from privacy advocates as the state would need to use a tracking device to determine the number of miles driven by every motorist.

Walz said this week that the effects of the gas tax hike would be offset by increasing the working family tax credit by $100 million. According to a Department of Revenue analysis, the tax credit wouldn’t be enough to compensate for the overall tax increases that will hurt the lowest-income Minnesotans the most.

The Department of Revenue analysis states that the poorest Minnesotans would absorb an average 9.9 percent of Walz' proposed tax increase, nearly double that of the wealthier half of Minnesotans.

Rep. Greg Davids, R-Preston, who requested the analysis, said the report shows that Walz’s tax plan is "outrageous and unacceptable."

According to AFP, in addition to the state gas tax, Minnesota households will pay an additional $300 more every year if a proposed new federal 25-cent per gallon tax hike goes through. If both state and federal gas tax increases are implemented, Minnesotans will pay 92 cents a gallon in taxes.

The Walz-supported measure now goes to the Senate.

Published under: Taxes