Sales tax cut for some in Minnesota Gov. Tim Walz budget proposal

Minnesota Gov. Tim Walz is proposing the state’s first ever sales tax cut in a budget that raises taxes at the same time.

It would also curb spending, especially on the two most expensive pieces of the budget.

Sales tax cut

And an increase?:

The governor’s budget would reduce the sales tax by .075% -- from 6.875% to 6.8% -- but it would also add a lot of professional services to the list of taxable items.

So, people who need an attorney, an accountant, or a money manager would usually end up paying more.

In other words, the sales tax rate would go down, but Walz also wants the tax levied on the kind of professional services more likely to be used by people with higher incomes.

"Why are you paying tax on your damn tree trimmer, and they're not paying it on going to their broker or going to their lawyer or going to their account?" he said. "Most people don't do an accountant. They fill out their tax forms on their own."

Lawn services, pet grooming, car washing, and several other services are already subject to sales tax.

Republican response

What they're saying:

Republicans responded almost immediately.

During the press conference announcing the proposal, Speaker Lisa Demuth tweeted, "There will be no tax increases this session. Period."

And co-Senate Majority Leader Mark Johnson sent us a statement calling the budget a missed opportunity.

"Republicans will stand firm against budgeting tricks that raise fees and taxes on regular Minnesotans."

Who's right?

Depends who you are:

It’s fair to say they’re all right about taxes.

The average family will save about $42 a year in reduced sales taxes if the governor’s ideas pass. But all of those savings would be erased by spending $620 on the newly taxed professional services.

The expected impact is about $185 million in additional revenue for the state.

Balancing act

Back in black:

The proposal also doubles a state levy on HMO revenue -- from 0.6% to 1.25%.

And it includes cuts to disability waivers for services to Medicaid recipients and to education funding, including special ed transportation reimbursements.

"We're cutting state spending," said Walz. "We're cutting it responsibly. We're making a difference in long term fiscal stability without making Minnesotans sacrifice the quality that they're already getting."

The bottom line of the budget proposal is a state still in the black in 2029.

But the governor acknowledges this is a starting point, and we’ll know a lot more next month when we get a new state economic forecast.

PoliticsMinnesotaEconomyTim Walz