Minnesota Gov. Tim Walz, Vice President Kamala Harris’s new running mate, has a tax policy record that could elevate the tax debate on the 2024 campaign trail.
As governor, Walz created the largest state child tax credit (CTC) in the nation and reduced taxes on Social Security income, but he also offset some of those tax cuts with various tax hikes on the state’s high-income households and businesses. Additionally, he created a new payroll tax to fund the state’s paid family leave program and enacted a cannabis tax for recreational sales.
Much of Walz’s record aligns with the broad themes, if not specifics, of Harris’s previous positions on tax policy—raising tax revenue from high-income households to fund ambitious policies and using the tax code to directly achieve policy goals.
However, as with any governor, keep in mind that his record in Minnesota will not simply map onto next year’s federal tax debate. Walz’s state enjoyed large budget surpluses over the past few years, while the federal government operates in a notably different fiscal environment.
Further, all of these policies were enacted only after Democrats gained full control of the state legislature in 2022—the state’s Republicans opposed his tax agenda—and we have no idea who will control Congress next year.
But for the next three months, here are five of Walz’s tax policies that could feature prominently in the campaign.
“The best child tax credit in the country,” Tim Walz
Twelve states have enacted or expanded a CTC since the American Rescue Plan temporarily but significantly expanded the federal CTC in 2021, but at $1,750 per child, Minnesota now offers the largest state CTC in the nation. Minnesota’s CTC is also accessible to a relatively large number of families because its child age and household income eligibility rules are broader than many other states.
While the CTC has some bipartisan appeal, debates over work requirements have stalled credit expansion proposals in Congress, including a bipartisan tax deal that recently failed in the Senate. In contrast, Minnesota’s CTC is “fully refundable” and thus has no income phase-in. As a result, a Minnesota family with an eligible child but little or no income can get the state credit even if they are not eligible for the federal CTC.
Social Security tax cuts: Walz vs. Trump
As part of the tax legislation Walz signed in 2023, Minnesota exempted Social Security income from state tax for single filers earning less than $78,000 and married filers earning less than $100,000.
Meanwhile, Donald Trump recently proposed completely repealing federal income taxes on Social Security income. The Trump proposal had no income eligibility restrictions, and a Tax Policy Center analysis found that biggest benefits would go to middle- and high-income households.
Still, the major difference between the two proposals is the price tag and budget circumstances. Walz’s exemption will cost the state roughly $250 to $300 million annually, or less than 1 percent of its general revenues. The relatively affordable cost of this state tax cut, combined with strong state revenue growth, is why Minnesota and many other states passed similar cuts in recent years or fully eliminated the tax.
In contrast, Trump’s proposal would cost about $150 billion annually, or roughly 3 percent of current federal revenues. More importantly, the federal repeal would lower revenues earmarked for the Social Security and Medicare Hospital Insurance trust funds that already face insolvency.
Tax increases on corporations and high-income households
When governors across the country signed tax cuts from 2021 to 2023, most simply used surplus revenue to fund the tax cuts. Minnesota was an exception.
While the legislation Walz signed in 2023 was a net tax cut, it included some offsetting tax increases. Specifically, the bill limited the amount of standard or itemized deductions that filers earning more than $220,000 could claim (with tighter restrictions on those earning more than $1 million), reduced a deduction for dividend income, and created a surtax on capital gain income. The law also conformed state tax law with federal rules on the global intangible low-taxed income tax (GILTI)—a minimum tax intended to prevent multinational corporations from shifting profits overseas—that amounted to a tax hike on corporations operating in Minnesota.
Republicans strongly criticized these tax increases, and as a result the bill passed on a 34-33 party-line vote in the Senate. But those tax increases also gave Walz the revenue necessary to deliver on his policy priorities for the state CTC and Social Security exemption.
Payroll tax for paid leave
Walz created a payroll tax in Minnesota that will fund the state’s new paid family and medical leave program. The new tax is 0.7 percent of employee wages, with the employer and employee splitting the tax payment. The Minnesota government can adjust the tax rate to fund the program, but the rate cannot exceed 1.2 percent. Minnesota joins 12 other states and the District of Columbia that have enacted state paid leave programs, most of which are funded with payroll taxes.
Many Democrats, including Harris, are pushing for similar programs at the federal level, but Republicans generally oppose the taxes that fund them.
Cannabis taxes
Walz signed legislation that legalized cannabis in Minnesota in 2023. When sales begin in 2025, the state will levy a 10 percent cannabis tax on the purchase price. While a plurality of Republicans support legalizing marijuana at the federal level, the map of states showing where cannabis is legal and illegal still looks roughly like the partisan split on our recent presidential election maps.
