Minnesotans, say no to an endless cycle of tax hikes

With three weeks left until the end of the 2025 legislative session, the conversation at the State Capitol on what to do about the budget has shifted to tax hikes. Under discussion is Governor Walz’s proposal to expand the sales tax to services currently not covered. Senate Democrats also want to raise the healthcare provider tax and create a new tax for social media companies.

This is concerning for multiple reasons.

First, these proposed tax hikes won’t address Minnesota’s structural deficit, which has existed since mid-2023. In addition, based on the Governor’s, Senate, and House budget proposals, spending will stay elevated and continue to grow for the foreseeable future. Minnesotans could be stuck with the double burden of persistent budget deficits and ever-rising taxes.

The deficit is a structural problem

In the February 2025 forecast, Minnesota Management and Budget (MMB) pegged spending for the two-year budgeting period that started in July 2023 and ends in June this year, at $71 billion. However, the state will only collect $62 billion in revenue during that period.

For the 2026-27 biennium, the next two-year budgeting period currently under discussion, the picture is largely the same. Spending tops $66 billion without including inflation, which is over $2 billion more than the state expects to bring in.

Table 1: February 2025 Budget Forecast

Tax hikes won’t balance the budget

Every year between 2024 and 2029, Minnesota will spend more than it collects in revenue, only the $18 billion COVID-19-driven surplus has masked this unsustainable trend.  The several tax increases that have been proposed will raise costs without raising sufficient revenue to resolve this imbalance.

Pressure on state coffers will rise, as spending continues to grow. This likely will mean ongoing, and (potentially) escalating budget deficits, which, without spending cuts, will only translate to additional tax increases later.

Certainly, federal policy, mostly through tariffs and other budgeting decisions, has added a layer of uncertainty to state budgeting that didn’t exist before. Minnesota’s budget, however, started flashing red at the end of the 2023 legislative session and, therefore, requires a long-term solution focused on addressing rising spending, particularly in Health and Human Services (HHS).

HHS will continue to drive spending growth

HHS — which mainly funds a wide range of welfare programs, from medical assistance to childcare and cash aid — is Minnesota’s second-largest and fastest-growing state expenditure. It is expected to overtake E-12 education beginning in the 2029 fiscal year and become the state’s largest expense. Together, E-12 education and HHS will consume over three-quarters of the state budget in 4 years.

Figure 1: Percentage Change in the four Major General Fund Spending Categories, 1990=100

Without meaningful spending cuts, HHS will likely continue to expand beyond the 2029 fiscal year, and not only impose a heavier burden on taxpayers and the economy but also leave less money in the budget for other public services, such as roads and public safety. Tax hikes cannot sustain this trend.

Besides, Minnesotans already pay among the highest taxes in the U.S., a major factor behind the state’s lagging economic performance over the last decade. The fact that the numerous 2023 tax and fee hikes won’t cover the growing state budget is merely proof that the deficit is a spending issue, not a revenue problem.

Say no to endless tax hikes

Currently, the state budget has no room to handle unexpected crises, like a recession, another pandemic, or federal spending cuts. Growing debt at the federal level also poses a potential risk to the budget, if it leads to a slowing economy. In addition, shifting demographics — the state’s aging population — and rising healthcare prices will continue to further strain state resources for years to come.

If legislators fail to align spending with revenues this session, only more painful cuts — and possibly additional tax increases — will inevitably follow.

Email your legislator and say no to creating an endless cycle of tax hikes in Minnesota.