Reducing statewide sales tax, expanding tax base included in Walz’s proposed budget plan

Gov. Tim Walz has shed light on his plans for Minnesota’s 2025 budget, saying he would like to slow down spending in order to balance the budget. Based on the latest budget forecast, lawmakers can either do more with less, raise taxes, or some sort of combination.

If it passes, Walz’s office says $2.1 billion would be left for the 2026-2027 fiscal year, and $355 million for the following fiscal year. Lawmakers are dealing with a lot less money than once expected, so they’ll have to get creative. In December, the state budget office forecasted a short-term surplus of $616 million through 2026-2027, which is $1.1 billion less than previously estimated.

Meanwhile, the budget office predicts that would mean revenue cuts and higher spending on things such as long-term care and special education. In addition, the office is now projecting a deficit of $5.1 billion for 2028-2029. However, the 2024-25 biennium is now expected to finish with a surplus of $3.75 billion, which is $461 million higher than projected.

On Thursday, Walz announced he is looking to cut the statewide sales tax by .075%, which according to his office would be the first time that happened in Minnesota history. In addition, the sales tax base would grow to include investing, banking, and legal services.

The proposed budget also includes the creation of a corporate franchise tax division unit that would do audits and work to close loopholes.

Also included in the proposal would be an increase to the surcharge for health maintenance organizations from 0.6% to 1.25% of total premium revenue, cuts of state funding to private schools and reduce Special Education transportation reimbursement costs by 5%.

Walz’s office says the cuts would save about $50 million in each of the next two-year budget cycles.

Another top focus for Walz this budget is preventing taxpayer money from being misused. 5 EYEWITNESS NEWS reported on his executive order issued two weeks ago to create a state fraud investigation unit. That order came after five people were convicted in the first Feeding our Future trial last June. CLICK HERE for KSTP’s full coverage of the Feeding Our Future investigation.

“It’s simply unacceptable,” said Walz at the time of the order signing. “It’s maddening and it makes Minnesotans and myself angry about this.”

On Thursday, Walz introduced an anti-fraud package, which proposes adding nine people to Attorney General Keith Ellison’s Medicaid Fraud unit and give agencies expanded authority in order to stop payments from going to suspects – both people and entities – who are charged or convicted of any fraud or financial crimes. The package would also use AI to find and prevent fraud and increase the penalty for stealing money from the public by 20%.

Other items included in Walz’s proposal include the expansion of both the Research and Development and Sustainable Aviation Fuel tax credits, as well as permitting efficiency measures, which his office says would help shorten the time it takes for business owners to get permits needed to operate in the state.

Passing the budget is already an uphill battle due to having a divided House and Senate. Walz said with a divided Capitol, there needs to be a willingness to find solutions that improve lives.

RELATED: Minnesota Senate leaders ready for budget battle I House power struggle goes to Minnesota Supreme Court I Democrats petition Supreme Court to declare GOP lacked quorum to elect speaker

You can find a breakdown of the governor’s proposal, as well as a stream of Thursday’s proposal announcement, at the bottom of this article. CLICK HERE to learn more about the operating and capital budget.

CLICK HERE for full political coverage from 5 EYEWITNESS NEWS.