Tim Walz has overseen one of the country’s most dramatic shifts toward higher taxes as Minnesota governor, including new levies on retail deliveries and workers’ earnings.
Minnesota has lagged behind the rest of the nation in economic growth. The state’s average weekly wages rank among the lowest, and population growth has stalled as high-income households leave.
By approving more than $10 billion in tax increases, Vice President Kamala Harris’ running mate is an outlier among governors of both parties who are slashing state taxes.
Mr. Walz’s tax-and-spending policies foreshadow the direction Ms. Harris plans to take the U.S. if she is elected in November.
Despite taking office in 2019 with a $17.6 billion state budget surplus, Mr. Walz has slapped Minnesotans with a series of tax increases. The surplus has been spent, and Mr. Walz has imposed:
• A 0.7% payroll tax on employers, half of which may be passed on to employees, making Minnesota among a handful of states with a payroll tax.
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• A 50-cent tax on more than $100 in retail deliveries except food. Colorado is the only other state with a retail delivery tax.
• An increased motor vehicle sales tax from 6.5% to 6.875%, among the highest in the country.
• A 1% sales tax in seven counties in the Minneapolis metropolitan area to more than 8% and 9% in Minneapolis. The average sales tax in the U.S. is roughly 6%.
• A 1% surtax on net investments such as capital gains, dividends, rental income, royalty and other investment income that exceeds $1 million a year.
• Increased corporate taxes by targeting a portion of the revenue Minnesota companies generate abroad.
• Limited tax deductions on families with annual incomes of more than $220,000.
Mr. Walz campaigned for governor in 2018 on the promise of adding a 10-cent-per-gallon gasoline tax and proposed increasing the income tax rate for millionaires to 10.85% from 9.85%, already one of the highest in the country. Neither measure cleared the Legislature.
“When it comes to tax hikes, Walz doesn’t discriminate. He is open to all manner of tax hikes — regular people, businesses and even those who can least afford it,” said Patrick Gleason, vice president of state affairs for Americans for Tax Reform, a conservative think tank.
Mr. Walz has said the tax increases have paid for much-needed social programs to help working-class Minnesotans.
The payroll tax will cover state-funded medical and family leave for workers. Three-quarters of the 1% sales tax increase will pay for new transportation projects, and the other quarter will fund state rental assistance programs. The delivery fee tax will finance new roads.
“We can cut taxes for the middle class without cutting taxes for massive corporations and the wealthiest people in Minnesota. They don’t need a tax cut,” Mr. Walz said in 2022.
As Mr. Walz defends the tax increases, Minnesota’s economy has struggled. Since the COVID-19 economic recovery began in the second quarter of 2020, Minnesota’s growth has lagged the national average by 5.5 percentage points, according to data from the Bureau of Economic Analysis.
Since Mr. Walz came into office, the largest employment growth has been in health care, the social assistance sector and government, according to data from the Bureau of Labor Statistics.
In the past year, Minnesota’s employment rate grew by 0.7%, ranking 42nd in the nation. The manufacturing sector has lost 7,500 jobs, and professional and business services jobs declined by 22,700.
From 2019 to 2022, migration to other states was the sixth highest for households with $200,000 or more in income and eighth among income from all households, according to the most recent Internal Revenue Service data.
Minnesota is ranked eighth in income loss. Former residents have moved to states with no income tax, such as Florida, Texas and South Dakota, which borders Minnesota. South Dakota’s job growth has quadrupled since Mr. Walz became governor of Minnesota.
“Before Walz came into office, Minnesota had growth ahead of the national average,” Mr. Gleason said. “I would never argue taxes are the only driver, but it’s an important factor and Minnesota is not competitive when states around the country are aggressively reducing tax burdens.”
Increasing the tax burden on Minnesota residents separates Mr. Walz from other governors, who have been cutting taxes since 2021. In the past three years, 28 states have cut individual income tax rates, 15 have cut corporate tax rates and a few have reduced sales taxes or enacted some other form of tax relief, according to the Tax Foundation, a nonpartisan research center that collects data about state and federal taxes.
“Under Gov. Walz, Minnesota has not hesitated to be an outlier on taxation,” said Jared Walczak, vice president of state projects at the Tax Foundation. “Gov. Walz is the rare governor right now who has prioritized tax increases rather than tax cuts. Most governors have signed tax cuts in recent years, while Gov. Walz has signed tax increases. He represents the higher tax progressive wing of the Democratic Party.”
Pennsylvania Gov. Josh Shapiro, who was also on Ms. Harris’ short list for running mate, is trying to accelerate a scheduled cut in the state’s corporate tax rate from 9.9% to 4.9%. At an event last month, Mr. Shapiro said that slashing the corporate tax rate is necessary “to grow jobs and create more economic opportunity.”
Ms. Harris has advocated increasing the national corporate tax to 35%, much higher than the 28% level President Biden has sought. The corporate tax rate was 35% but dropped to 21% in 2018 as part of President Trump’s tax relief package.
Another candidate on Ms. Harris’ short list, Kentucky Gov. Andy Beshear, last year signed a tax cut bill advocated by state Republicans. He said it would provide relief for residents struggling with inflation. The proposal left Kentucky’s corporate tax rate untouched.
Mr. Walz’s desire to increase corporate taxes may have been a factor in Ms. Harris’ decision to name him rather than Mr. Shapiro, who was viewed as a heavy favorite. Sen. J.D. Vance of Ohio, the Republican vice presidential nominee, has suggested that Mr. Shapiro wasn’t selected because he is Jewish and young liberals have voiced anger at Israel over its war against Hamas in the Gaza Strip.
“Shapiro’s comments would have been used against the Harris campaign and her plan to raise the corporate tax rate to 35%,” Mr. Gleason said. “They would have had a real problem with Shapiro contradicting her, so the Harris campaign avoided the headache by going with Walz.”
The Institute on Taxation and Economic Policy, a liberal think tank that studies state and federal tax policy, described Minnesota’s taxes under Mr. Walz as “progressive but hardly radical.”
“The state has embraced practical, administrable reforms that have lowered taxes for working-class families, reduced child poverty, and addressed the public’s frustrations with the tax treatment of multinational companies and wealthy people,” Research Director Carl Davis said in an analysis.
Mr. Walz cut taxes in two areas. He created a child credit and added an exemption for most Social Security income. This exemption already existed in most other states, suggesting Minnesota was catching up to the rest of the country.
The state’s child income tax credit phases out at $29,500 for single-income filers and at $35,000 in household income for joint filers. In a two-child household, the tax credit would phase out at $67,000 in household income. That is well below Minnesota’s median household income of $82,000, meaning it is available only to low-income households.
• Jeff Mordock can be reached at jmordock@washingtontimes.com.
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