State governors are directly shaping the economic landscape of their states through critical decisions on taxes and spending. This pressing issue is illuminated by the recent release of the Cato Institute’s 17th biennial Fiscal Policy Report Card, which rigorously evaluates the tax and spending policies of America’s governors. The report clearly distinguishes between those who prioritize fiscal discipline and those who pursue big government agendas.
Governors such as Iowa’s Kim Reynolds and Nebraska’s Jim Pillen have been celebrated for their commitment to controlling taxes and spending, earning top marks. In contrast, Minnesota’s Governor Tim Walz finds himself on the opposite end of the spectrum, as his policies have taken Minnesota down a markedly different path. Under his leadership, the state has seen dramatic increases in government spending, with his 2023 biennial budget swelling by 36% and incorporating hikes in business, payroll, and vehicle taxes.
The implications of such policies are vast. Despite the challenge of managing an unprecedented $17.6 billion budget surplus, Walz opted for new spending initiatives, leading to a projected budget deficit in future fiscal years. As stated by economist John Phelan, Walz not only depleted the surplus but compounded the problem by burdening Minnesotans with an additional $10 billion in taxes. This is a stark contrast to the national trend, where 26 states have taken proactive steps to reduce tax burdens between 2021 and 2023.
One of the most telling outcomes of Minnesota’s high-tax approach is its status as an “exodus state,” where families and high-income earners are increasingly relocating. This outflow threatens not only tax revenues but also the state’s human capital and potential for wealth creation. For the first time, Minnesota has even fallen below the national average in GDP per capita. The high tax climate under Walz has contributed significantly to this demographic shift, impelling skilled workers and entrepreneurs to seek more favorable economic environments in other states.
The broader national landscape mirrors this trend. States like Florida and Texas continue to attract domestic migrants, drawn by their welcoming tax regimes and lower cost of living, whereas traditionally high-tax states like New York, California, and now Minnesota, see their populations dwindle. Data from the IRS underscores this migration pattern, revealing that Minnesota loses more high-income households than it gains, contributing to a wider national phenomenon of affluent taxpayers fleeing to more fiscally responsible states.
Despite these challenges, a narrative persists that seeks to downplay the economic consequences of high taxes and expansive government spending. Governor Walz has pointed to findings that cast Minnesota as a desirable place to live and work, yet this is belied by the state’s poor showing in the Tax Foundation’s 2024 State Business Tax Climate Index. Ranked 44th out of 50, Minnesota’s deteriorating fiscal landscape is undeniable.
While economic missteps are not exclusive to one political camp, with both sides occasionally advocating detrimental policies, the impact of Walz’s fiscal approach is palpable. As Minnesota continues on this trajectory, the need for a shift toward lower taxes and limited government becomes ever more pressing. Only through adherence to pro-growth, market-driven principles can the state reverse its fortunes, retain its citizens, and revive its economic prospects. Until then, Minnesota risks continued loss of businesses and talent to states that champion liberty and economic freedom.
