Minnesota businesses fear tax hikes to cover unemployment benefit debt


Minnesota owes the federal government more than $ 1 billion, and businesses statewide are worried they’ll be hit by the bill.

More than a quarter of Minnesota’s workforce filed for unemployment benefits the year after the COVID-19 pandemic swept the country, draining $ 1.5 billion in the trust fund of the state that supports the workers who are left behind. Minnesota then borrowed more than $ 1 billion from the federal government to keep unemployment benefits coming.

Now a political clash is brewing over how to repay the debt and replenish the trust fund. Business owners urge heads of state to act quickly to limit an impending tax hike.

“It could be absolutely devastating,” said Jonathan Weinhagen, president of the Minneapolis Regional Chamber of Commerce. If UI payroll taxes rise to cover costs, Weinhagen said it would hit small businesses harder. “It’s really money to start with, which hasn’t looked really good over the past couple of years.”

The debate over unemployment insurance debt intensified this week as budget makers announced a projected historic budget surplus of $ 7.7 billion over the next two years. Paying off the debt – and whether to use the surplus, federal aid, or other means to manage it – could be one of the biggest issues lawmakers face in the next legislative session.

“We’ll have that one in the negotiations. We’ll get it fixed,” LDF Governor Tim Walz said on Tuesday. He declined to say whether he would use the federal pandemic relief dollars, saying, “I’m not going to be in specific negotiations with myself.”

Minnesota is among nine states and the Virgin Islands which owes the federal government a combined total of about $ 39 billion and pays interest on the debt.

“We will continue to work with other states in similar positions to see if Congressional resolutions are possible,” said Department of Employment and Economic Development (DEED) spokeswoman Jen Gates.

She said state officials have been in contact with the Minnesota federal delegation throughout the pandemic on how Congress can help states with UI trust funds, but there is had few signs of congressional action on this front.

Meanwhile, DEED is expected to release its new unemployment insurance tax rates for employers on Wednesday. They go into effect Jan. 1, but the first payment from employers under the new rates would not be due until April, Gates said.

Minnesota should follow other states that have invested some of their federal pandemic relief money towards unemployment costs, said parliamentary minority leader Kurt Daudt, R-Crown. The conservative bent Tax foundation reported in September that 31 states had spent part of their funding from the last two federal COVID economic packages to replenish their unemployment trust funds.

“If the governor takes no action, he will be responsible for a 15% small business tax increase across the state of Minnesota,” Daudt said. “I think that’s unreasonable at a time when our state has a $ 7.7 billion surplus.”

House Democratic Majority Leader Ryan Winkler said his colleagues wanted to make sure struggling small businesses could get tax or other help, potentially through the state spending a lot of money. part of the money in the UI trust fund.

“But we’re not interested in providing a big tax benefit to big companies that don’t need it,” said Winkler, DFL-Golden Valley. “And so we’ll have to think pretty quickly about how to work with the business world, to work with the Republicans, to target aid to businesses that are struggling in that environment.”

Minnesota Management and Budget’s latest budget surplus forecast U.S. corporate profits to grow 19% in 2021, nearly four times the rate expected in February.

Mike Flynn, investor and operator of Whitewater Travel Plaza in St. Charles, is among small business owners urging state officials to act.

Flynn said his restaurant was closed for about seven weeks during the peak of COVID-19 cases last year. Now they are understaffed and are trying to find people to fill the vacancies. He’s still trying to figure out what the increase in the payroll tax rate might mean for Travel Plaza’s finances, and fears the payments could stretch over several years before the fund is replenished. at pre-pandemic levels.

“In a small business, that’s a big deal,” Flynn said. “Using some of the stimulus money to replenish that fund is very justifiable in my mind.”

While final payments aren’t due for several months, he said business owners are already planning months and years ahead. Last year, lawmakers squabbled through July over tax cuts for businesses that obtained loans from the Paycheck Protection Program to help them weather the pandemic.

“It’s been a frustrating part of the Minnesota government lately,” he said. “Businessmen have to plan ahead, years in advance, and here we are on the cusp of this thing.”

With the entire Legislature and governor in election in 2022, Weinhagen said politics could complicate attempts to find a quick fix. Despite partisan divisions and strong demand for a portion of the $ 7.7 billion, Weinhagen said he hopes lawmakers reach a deal to use one of the largest surpluses in the history of the U.S. State on the unemployment insurance problem.

“The biggest concern I hear from small businesses is that uncertainty is the worst thing, and they have lived in uncertainty for so long now,” he said. “The more this thing looms, the harder it is for businesses to plan.”


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