Gov. Walz’ sales tax proposal makes a mess of a good idea

A step in the right direction takes a wrong turn

Back from his failed bid for the Vice Presidency, Gov. Walz released his proposed budget for FY 2026-27 yesterday. As my colleague Bill Glahn noted, “This exercise is largely meaningless, with the next budget estimate not due until the end of February,” but it provides a useful hint of what we will be discussing for the next few months.

The headline measure is a proposed cut in the sales tax rate – the first in Minnesota’s history – from 6.875% to 6.8%. So, on a purchase of $100, you’d save eight cents. But what the governor gives with one hand he takes with the other – and then some. His budget also extends the base of the tax by applying it to a lot of professional services, like attorneys, accountants, or money managers, which are currently exempt.

Typically, the governor draped all this in divisive “Class War” rhetoric, blustering about rich people using these services and not paying tax on them. The fact that he thinks its only oligarchs who hire accountants shows, again, that he doesn’t have a very clear picture of the average Minnesotan’s life. My local H&R Block gets pretty busy come tax season, and I have yet to see Glen Taylor in the waiting room.

The Holy Grail in tax policy is to levy low rates on a broad base. Gov. Walz’ budget moves us in that direction, so deserves at least some praise.

But in practical terms, what matters is the extent to which the reduction in the tax take from the lower rate is offset by the increase from the broadened base. Under Gov. Walz’ budget, the average family will save about $42 a year in reduced sales taxes but that saving would be dwarfed by spending $620 on the newly taxed professional services. Overall, the expected impact is about $185 million in additional revenue for the state government.

Minnesotans are already some of the most heavily taxed citizens in the United States and this burden needs to be reduced. We have shown that the state government could close its forecast budget deficit entirely with spending cuts and still leave real terms, per capita spending in 2029 at a level above any year before 2024. With state government spending up 23% since 2019 in real, per capita terms, there is no excuse whatsoever for the governor to tap Minnesotans for yet more of their hard earned cash.

Lower rates on a broader base is a sound guiding principle. But in Minnesota’s circumstances, the governor’s particular proposal is totally unacceptable. We would only support a base broadening measure if the revenue effect was at least offset with lower rates, and with the sixth highest rate of state sales tax in the United States, there is ample scope for that. Speaker Demuth has promised to block this move. We hope she does.