In 2023, Minnesota had a budget surplus of nearly $18 billion. The state’s current financial picture is less rosy — with a $456 million surplus for 2026-27 and a shortfall of $6 billion for the following two years. The state has to have a balanced budget, so the Legislature will either have to m ake spending cuts or raise taxes. So far, spending cuts seem to be the governor’s and lawmakers’ favored method for reaching balance, but tax hikes remain on the table. What they’re saying on taxes Here’s what state leaders are saying about taxes this session: Gov. Tim Walz, a Democrat, recently said he isn’t “asking to balance this budget by increasing revenue,” though his budget proposal does call for new taxes for services like legal advice and accounting. It also calls for a modest reduction in the state sales tax. Minnesota Gov. Tim Walz. (AP Photo/Matthew Putney) “I’m asking to balance this budget by curbing long-term spending and continuing to invest in the things that grow our economy,” he said after a negotiation session with Democratic-Farmer-Labor and GOP lawmakers earlier this month. Republican leaders in both the House and Senate oppose any new taxes in the budget. “Any tax increases are off the table,” Republican House Speaker Lisa Demuth said in January after Walz presented his initial budget recommendations. House Speaker Lisa Demuth, R-Cold Springs. (John Autey / Pioneer Press) DFL lawmakers haven’t ruled out new taxes to help balance the budget. Some House DFLers are backing a proposal to create a new tax bracket for top earners to help the state with potential cuts to Medicaid, something that might happen under a Republican-controlled Congress and President Donald Trump. House Tax Committee Chair Aisha Gomez, DFL-Minneapolis, says they’re ready for conversations about finding ways to raise revenue. “When the moment’s upon us, it’s like the real choices will just be right there,” Gomez said at a press briefing on the new tax tier bill. “We’re not going to be able to go back into remote ideological bunkers and make … absolute statements.” Senate Majority Leader Erin Murphy said the DFL-led Senate’s tax committee is weighing various proposals to raise revenue. The Senate DFL’s budget targets rely on billions in cuts over the next four years to help address shortfalls. Senate Majority Leader Erin Murphy. (AP Photo/Steve Karnowski) Asked if she thought Republican resistance to any new taxes was realistic, Murphy said DFLers want to see how Republicans would balance the budget without reductions to the Human Services and Education departments, which Walz and the Senate DFL had backed. “If they don’t want to raise revenue, then I want to see where they’re making their cuts,” Murphy said, adding she is worried there will be tougher times for the state down the road. “We know down the line that we could see some incredibly damaging cuts coming from the Republican Congress and Republican president.” DFL House leader Melissa Hortman said she’d have to wait to see what Republicans propose for the budget before she could make any serious calls on how her caucus will proceed. “I’ll be interesting to see what the GOP, what the Republicans, put on the table for their budget proposal,” she said. “Because so far, what we have seen Minnesota Republicans do is sit back and say, not this, not that. No, governor, we don’t like this proposal.” The state’s budget State budget officials warned earlier this month that uncertain economic conditions brought by the Trump administration’s policies, such as tariffs and federal government cuts, could mean tougher times ahead. Democratic-Farmer-Labor politicians used that to blame the president for the worsening budget forecast. However, the state was already spending more than it was taking in under a budget they had passed in 2023, when they grew spending by nearly 40% to over $70 billion — a few billion of that one-time spending. In that last two-year budget, which had a significant amount of one-time spending, the DFL-controlled state government significantly expanded government spending to fund programs like paid family and medical leave, free school meals and free public college tuition for low-income students. The future deficit for 2028-29 of $6 billion is up a billion from the $5 billion forecast in December, according to Minnesota Management and Budget. The governor’s budget In his budget recommendations, Walz has already proposed cuts to long-term disability services and special education to keep costs from growing. Walz first presented his budget proposal back in January, as is typical for the governor, and he also asked for cuts and changes to state sales tax. His proposal also calls for new taxes for services like legal advice and accounting. The governor is seeking the statewide sales tax to be cut from 6.875% to 6.8%, meaning Minnesotans would pay $7.5 cents less on every $100 they spend. That amounts to a $95 million cut to overall sales taxes. Power-sharing in the House Meanwhile, Republicans have a 67-67 tie with Democrats in the House and it’s the first time they’ve had serious sway in budget talks for some time. Though under a power-sharing agreement with the DFL, they won’t be able to get any partisan budget proposals to the House floor. Even if they could, Democrats still control the Senate. Lawmakers have until May 19 to finish their business. But if they don’t, they’ll have to come back for a special session to pass a budget before the end of June or risk a government shutdown. As the DFL trifecta expanded state government spending by nearly 40 percent in 2023, Republicans decried what they called roughly $10 billion in new state taxes between 2023 and 2027 that came along with new programs and other adjustments. One tax was for a new paid family and medical leave program, which will charge a new payroll tax of 0.88%, which will be split between employers and employees and has exceptions for smaller employers. The 2023 session also resulted in new fee increases for vehicle registrations and local sales tax increases. The DFL also created a 50-cent fee on all retail deliveries of $100 or more. The fee applies to sales of goods subject to state sales tax, as well as clothing, though prescription drugs, food, items purchased for resale and baby products are exempt. Republicans have opposed those increases while calling for broader long-term tax relief, including exemptions for Social Security income. The DFL expanded those exemptions, though Republicans want to fully eliminate Social Security taxes. Related Articles 2,350 Minnesotans were sterilized under state’s 1925 eugenics law — most of them women St. Paul downtown: Lunds, Alliance Bank retailers close up shop Families of Cambodians, Lao, Vietnamese affected by ‘Secret War’ seek wider state recognition Minnesota judge says ex-senator arrested in prostitution sting can be released to halfway house St. Paul mayor, Wild owner pitch Xcel Energy Center to senate panel ...read more read less