Tim Walz’s Progressive Policies Spark Debate Back Home in Minnesota

(Bloomberg) -- As Minnesota Governor Tim Walz prepares to accept the nomination in Chicago on Wednesday to be Kamala Harris’ vice president, there’s disagreement back home about whether his economic policies have been good overall for his state.

Business groups and Republicans say Walz’s support for increased spending, stricter regulations and higher taxes on the wealthy and companies discourages investment and hinders economic growth. Unions and supporters say the governor’s progressive policies make Minnesota a better place to live and work.

The battle between those competing narratives is likely to take center stage as Democrats and Republicans battle to define the relatively unknown governor during the eleven-week sprint to Election Day. 

The debate in Minnesota mirrors the competing approaches on taxes and regulation nationally, with Republican presidential nominee Donald Trump accusing Harris of backing liberal policies that will wreck the US economy and the vice president saying she’s offering a leg up to the poor and middle class.

“Everybody matters,” Walz told supporters Monday in Chicago. “Everybody’s got a chance. Everybody can see generational wealth, everybody can get access to capital to start their small business.”

Walz took office in 2019 with a Democratic-controlled state House and Republican-led Senate. But after Democrats won control of both chambers and the governor’s office in 2022, they enacted a sweeping legislative agenda that even caught the attention of former President Barack Obama.

The governor and Democrats passed free breakfasts and lunches for students, approved paid family and medical leave, made the largest single investment in public education in state history, passed a $2.6 billion infrastructure law, enacted the largest child tax credit in the US and made other changes including $1 billion for new housing and down-payment help.

The debate over taxes and regulations in Minnesota highlights the trade-offs between economic growth and quality-of-life improvements, said Lacey Chu, an economics professor at St. Catherine University and president of the Minnesota Economic Association.

Lagging Growth

Walz’s investments in public works, housing and childcare will have a positive impact but the spending, new taxes and regulations won’t, said Doug Loon, president and chief executive of the Minnesota Chamber of Commerce.

The governor increased spending by 36% in 2023, turned an almost $18 billion budget surplus into a projected future deficit and enacted $10 billion in taxes and fees. Regulations such as new safety standards at large warehouses are also increasing mandates and costs for businesses at a time of high inflation, Loon said.

While some things Walz has done have been “helpful to the state,” Loon added, his record “the past couple of years has been troubling, and I think puts us at a significant economic disadvantage.” Loon said Minnesota’s economy is growing but not at the rate it could.

Real GDP per capita growth in Minnesota between 2019 and 2023 lags the US and five of the seven key swing states, federal data show.

The trade-off is not dissimilar from policies Harris has proposed at the national level, which would see sweeping new benefits come at the expense of corporate profits.

Harris’ campaign has said her proposals for an expanded child tax credit and mortgage assistance for first-time homebuyers would be offset by increased taxes on corporations and high earners. She also wants new caps on out-of-pocket prescription drug costs, with pharmaceutical and insurance companies shouldering the burden.

Minnesota has the largest corporate tax rate in the US at 9.8%, and its per-capita state tax collection in fiscal 2022 was 8th highest nationwide, according to the Tax Foundation. Minnesota was one of the few states to raise taxes after the pandemic rather than cutting them, the group said.

The new family and medical leave program that takes effect in 2026 will provide partial wage replacement for workers for as many as 20 weeks but is funded by a new payroll tax paid by both employers and employees that could affect productivity at a time when there’s already a worker shortage in the state, Loon said.

“As Minnesota’s population growth slows and our workforce shortage deepens, our status as a high-tax state and the budget instability wrought by the spending spree will increasingly harm our economic future,” said John Reynolds, the Minnesota state director for the National Federation of Independent Business.

Tax Changes

A bill Walz signed in 2023 limited certain tax deductions claimed by filers earning more than $220,000, created a surtax on capital gains, and left multinational corporations reporting income overseas facing higher taxes.

While no one likes to pay taxes, the investments and policies Walz championed are making Minnesota a better place for workers to live and for businesses to grow, said Bill George, the former chairman and chief executive officer of Minneapolis-based Medtronic. He considers himself an independent who supports Walz.

“He’s going to try to do the best overall thing for the state,” George said. “We do pay high taxes, but that’s what gives us such a great environment and allows us to flourish in many ways.”

George pointed to the growth at Medtronic, Target Corp., Best Buy Co. Inc. and other large Minnesota-based companies, as well as the Mayo Clinic last year announcing a $5 billion expansion plan and the state’s low unemployment rate historically.

Union leaders have hailed Walz’s “pro-worker” policies. Joel Smith, president and business manager of LIUNA Minnesota and North Dakota, said the governor’s support for public works investments put his 14,000 members to work and kept “the economy strong.”

Charles Lutvak, a Harris campaign spokesman, said Walz has led Minnesota “with strong leadership, competent management, and smart policies.” Trump will have to defend his “record of instability and unpopular anti-growth agenda” against the Harris-Walz “vision to foster business growth, create jobs, and lower costs for the American people,” he said.

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