Iowa, Minnesota Show Divergent Fiscal Paths Amid Budget Surpluses, Deficits

DES MOINES, Iowa, and ST. PAUL, Minn. — Iowa and Minnesota, neighboring Midwestern states, have taken starkly different fiscal approaches in recent years, resulting in contrasting financial outcomes. Iowa, under Gov. Kim Reynolds, has embraced conservative budgeting, leading to budget surpluses and tax cuts, while Minnesota, led by Gov. Tim Walz, has increased spending and taxes, resulting in projected deficits.

Iowa has prioritized fiscal responsibility, achieving multi-year budget surpluses, fully funded reserve accounts, and a Taxpayer Relief Fund nearing $4 billion. These measures enabled historic income tax reforms, reducing the state’s top income tax rate from 8.98% to a flat 3.8% and corporate taxes from 12% to 7.1%, with further reductions planned. Reynolds has also streamlined state government, reducing executive-level agencies from 37 to 16, saving taxpayers $130 million in less than 18 months.

In contrast, Minnesota entered 2023 with an $18 billion budget surplus but spent it entirely, increasing spending and raising taxes by $10 billion. This has led to a projected $5 billion deficit for the 2028-2029 biennium. Walz’s administration has expanded government programs, including a Paid Family and Medical Leave scheme funded by a 0.7% payroll tax, which is expected to rise by 23% in four years to remain solvent.

The Cato Institute ranked Reynolds as the nation’s most fiscally conservative governor, while Walz received the lowest ranking. Reynolds stated, “Income tax reform is far from over,” emphasizing her commitment to further rate reductions. Meanwhile, Minnesota’s fiscal policies have drawn criticism for their long-term sustainability.

These divergent paths highlight the broader fiscal choices facing the United States as it grapples with rising deficits and interest rates. Iowa’s model of fiscal conservatism contrasts sharply with Minnesota’s approach of higher taxes and spending, offering a clear policy divide for policymakers to consider.

In a separate development, the Minnesota Supreme Court canceled a special election for House District 40B, ruling that Gov. Walz set the date prematurely. The decision, which voids early voting ballots, delays the election until at least March 5. The ruling has intensified political tensions, with Republicans praising the decision and Democrats calling for a power-sharing agreement to address the House’s current 67-67 tie.

Rep. Lisa Demuth, the Republican House Speaker, said, “We want the residents of 40B to have representation as soon as possible and look forward to the Governor calling a special election pursuant to state law.” DFL leader Rep. Melissa Hortman expressed disappointment, stating, “Democrat David Gottfried will win this election, and the Minnesota House of Representatives will return to a 67-67 tie.”

The fiscal and political battles in Iowa and Minnesota underscore the broader national debate over government spending, taxation, and governance.