From school board members to the governor, Minnesotans who win elected office next month will have to seriously reckon with whether the state has become too expensive to attract new businesses and people.

That process should even go as far as lowering the state’s business tax. At 9.8%, it is the nation’s second-highest and will take the top spot in 2029, when a business surcharge in New Jersey expires.

At an economic-focused forum hosted by the Minnesota Chamber in Brainerd last week, the two main candidates for governor, Republican Lisa Demuth and Democrat Amy Klobuchar, told the audience of business owners they would like to cut taxes. They offered no specifics, however.

State-level leaders made it through the last four years without being forced to confront the tradeoff between costs and growth, even though state government’s size and cost grew massively while Minnesota’s economic growth underperformed most other states and the nation as a whole.

Over the past four years, other states made significant changes to taxes, sometimes reducing them after being showered with surplus revenue the way Minnesota was in the early 2020s. Pennsylvania, which once had the nation’s highest business tax, has been gradually lowering it since 2022.

When Minnesota had an $18 billion surplus in early 2023, the then-DFL-controlled Legislature and Gov. Tim Walz undertook the largest increase to government spending since the 1970s. With all the focus on the good things that would come from this new spending, there was little public discussion about the effect of bigger state government on a slow-growing economy.

Last week, I criticized Republicans for their intense focus on fraud, which has distracted voters from the cost of living and business in the state.

But it is Democrats who, having led the state for over a decade, built up the size and cost of government so much while the business climate and state population stagnated.

If they retain control after Nov. 3, as many expect, they will face the same question that anyone running a business does: How much can I charge before customers won’t buy what I’m selling?

Government leaders raise the costs on businesses and individuals through rules, inefficient delivery of services and, most visibly, tax rates.

At the state level, unfortunately, spending has risen so much that policymakers may be tempted to raise taxes instead.

When Minnesota’s government forecasters release a new fiscal outlook next month, they are likely to say the state’s spending will exceed revenue in the next two budget periods, 2028-29 and 2030-31. Unlike the last two cycles, the state no longer has money left from previous years to balance the budget easily.

On the surface, there appears little room for a discussion about cutting taxes, but the arrival of a new governor and Legislature is a ripe moment to channel all that discussion and consider ways government collides with opportunity.

“What I’d like to focus on at the Capitol this session is the question: Is our tax system designed for growth?” said Brian Cook, a tax expert and lobbyist at the Minnesota Chamber of Commerce, the state’s largest business group.

Writing this column over the past four years, I’ve heard from so many business leaders and economic development officials who wish Minnesota’s taxes were lower that I’m almost numb to the discussion.

They argue Minnesota gets overlooked for business relocations and investment because the state is in the top 10 in so many categories of taxes.

“Our position for a long time has been that we would like to be out of the top 10,” Cook said.

To get to No. 11, Minnesota’s corporate tax rate would have to be cut to 7.99%. That would diminish the state’s two-year revenue by roughly $1.3 billion, or about 2%.

“That’s a big number. We’re cognizant of that,” Cook said.

The chamber won’t propose a cut in business tax rates in 2027, he added, because of the gap between revenue and spending the state is facing. But it will recommend scaling back business tax collections in years (like 2021) when revenue beat expectations.

Cutting taxes on business is a hard sell. Business is particularly unpopular at this time when billionaires are faring better than ever while the rest of us struggle.

Besides, Minnesota’s tax on business has been very helpful to the state’s coffers since the economy’s last truly rough year, in 2022. The business tax produced bigger revenue gains on a percentage basis than any other major tax in Minnesota over the last four years.

Some business owners and tax experts note that legislators and the next governor also have opportunities to relieve taxes in other ways, through changes to depreciation schedules, for instance.

But there’s symbolism in tax rates. Think of them like the sticker price of a car. You make a judgment about a car in that first glimpse of its cost, even though you know you can negotiate it lower.

The big jump in government spending over the last four years, however, has made it harder for policymakers throughout Minnesota to compromise on price.

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