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Budgeting tricks’: Walz pitches .075% sales tax cut, but wants to expand taxable services

Gov. Tim Walz recently revealed his proposed budget for the state of Minnesota, marking a significant step in his fiscal agenda. At the center of the nearly $66 billion plan is a proposed 0.075% reduction in the state’s sales tax.

Walz pitched this as a major initiative that would benefit residents, positioning it as a proactive measure against potential tariffs under the incoming Trump administration, while also promoting fairness in the state’s tax system.

According to Walz, this reduction would be a historic first in Minnesota’s tax history. However, the proposal also involves expanding the range of taxable services, which would raise hundreds of millions of dollars in new revenue over the next few years.

 

The inclusion of expanded service taxes has drawn sharp criticism from Republicans, with leaders from both the House and Senate swiftly rejecting the plan. Senate Republican leaders expressed their disapproval, stating that any form of tax increase was off the table. Speaker of the House Lisa Demuth also took to social media, reinforcing that no new taxes would be introduced during this legislative session. The stark division reflects a broader ideological rift, with Republicans emphasizing the need for responsible budgeting that avoids raising taxes, particularly in light of previous significant increases under Walz’s administration.

 

Under Walz’s proposal, the state’s 6.875% sales tax rate would be slightly reduced, but consumers would ultimately pay more in taxes on certain business-related services. Services like banking, legal, brokerage, and accounting would be taxed for the first time under this new framework. This expansion of the sales tax base aims to raise $185 million by 2027, with an expected increase to $235 million by 2029. This move recalls similar attempts by former Gov. Mark Dayton in 2013 to expand the sales tax to services, which were abandoned after facing strong opposition from the business community.

 

Republicans argue that the proposal constitutes a hidden tax hike, particularly because it would impose new tax obligations on businesses that were previously exempt. Demuth criticized the plan for its potential to increase costs for Minnesotans, particularly seniors, and suggested that it could lead to a growing deficit. With Republicans holding a slight majority in the Minnesota House and a split Senate, the battle over the budget is likely to continue into the legislative session, where compromise will be key.

 

Despite the partisan clash, Lt. Gov. Peggy Flanagan, who appeared alongside Walz during the announcement, expressed optimism about the future of negotiations. While acknowledging that the budget proposal was just an initial step, Flanagan emphasized the possibility of bipartisan cooperation moving forward. Walz, alongside key administration officials, stressed that the proposal aimed to address Minnesota’s projected $5.1 billion deficit by curbing the growth of spending in certain sectors. The unfolding budget debate is expected to shape the state’s financial outlook in the coming years, with key decisions to be made in the months ahead.

 

 

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