Capitol Watch: Will taxes be raised again?

There are three full weeks left in the 2025 Minnesota legislative session. The House, Senate and Gov. Walz each put forward budget proposals that rely on surplus dollars to meet the constitutional requirement of a balanced budget. The 2026-27 and 2028-29 budgets will remain structurally imbalanced going forward. The big question for the final three weeks will be whether or not they raise taxes to preserve and protect state government spending.

Governor Walz proposed a sales tax increase. Senate Democrats proposed a provider tax increase and a new tax on social media companies. House Democrats struck a deal on budget targets that does not include a tax increase, but that didn’t stop them from proposing a new fifth tier of the individual income tax. You know they would agree with the Senate and governor on a tax increase if they had the votes. That leaves House Republicans as the only ones standing in the way of a tax increase. Think of the tax battle as two and a half versus a half.

As the tax battle unfolds, consider these Minnesota tax truisms:

• Minnesota state government does not produce anything. The state takes money out of the economy through taxes to fund programs or redistribute wealth.
• When the state changes a policy that results in more revenue, it’s called a tax increase.
• All taxes are paid by Minnesotans. Insurance companies, hospitals, doctors, dentists, gas stations, social media companies and all businesses pass the cost of taxes directly or indirectly to consumers (taxpayers).
• The Minnesota state budget is projected to spend $2.140 billion more than it takes in for the 2026-27 biennium and $3.980 billion more than is takes in for the 2028-29 biennium. There is not a revenue problem. Spending is increasing faster than tax revenue.
• The largest and fastest-growing areas of the state budget are human services (welfare) and K-12 education. Together, they account for 70% of the entire state budget.

House and Senate Republicans are framing the tax fight as a choice between free health care for illegal immigrants or higher taxes on Minnesota families. Their argument is bolstered by a surge in MinnesotaCare spending after coverage was expanded to illegal immigrants in the now-famous 2023 “Off the Cliff” session. The program is being overwhelmed by exploding numbers of immigrants signing up for “free” state-sponsored health care. More than 17,396 illegal immigrants have joined the MinnesotaCare rolls in the first three months, which is more than double the projected enrollment for the first three years, with costs ballooning to $600 million.

Reducing the session to the juxtaposition of tax increases and illegal immigrant health care might be the Republicans’ best option for messaging a possible government shutdown. Government shutdown messaging usually favors the governor and his party, but $600 million for free health care for immigrants will be hard for Democrats to defend.

If history is our guide, Republican leaders will have a harder time saying no to an increase in the provider tax, known as the sick tax. It was set to expire in 2019, but Gov. Walz convinced Republicans to extend the tax, arguing it wasn’t technically an increase because the extension merely maintained the status quo. It won’t be so easy to hide a provider tax increase this year. If someone tries to convince you it’s not a tax increase, refer them to the tax truisms above.

It’s the time of session to send an email to your senators, representatives and Governor Walz telling them not to raise your taxes. American Experiment makes it easy by clicking here.

If you think your voice doesn’t matter, consider what we’re up against. Many liberal groups have similar campaigns running right now sending hundreds of emails to legislators urging them to save Medicaid, protect unemployment for union members, and prepare for whatever horrible thing they think is coming from Washington, DC.  

One of the regular players in the “call your legislator” game is the Minnesota Budget Project, funded by the Minnesota Council of Nonprofits. Their current call to action urges legislators to prevent Medicaid cuts. The other side is well organized! Please take a minute and send an email now.

State of the State

Gov. Walz delivered his seventh state of the state speech this week. It was a lazy, twenty-two-minute speech that spent seven minutes recapping past accomplishments and six minutes on a bizarre, misplaced rant against President Trump. Thankfully, Walz dedicated the final eight minutes to the 2025 budget, admitting his plan will only cut the structural deficit in half. He also repeated his warning about human services spending taking over the entire budget (welcome to the party, Tim!).

But he tried to blame the problem on nameless, faceless leaders of both parties from the past. The blame belongs squarely with Walz and his Democratic Party allies for their 2023 budget that expanded eligibility (and costs) for welfare programs. The other blame goes to Gov. Mark Dayton for opting Minnesota into the Medicaid expansion in his first action as governor in 2011. We will have more to say about the Walz State of the State speech this week in the next edition of Stop the Tape! Watch for it on Tuesday afternoon.