Ramstad: Trump’s risky economic plans assume it’ll be worth it, but Minnesotans will first feel pain

The Minnesota Department of Management and Budget releases its updated outlook on the state budget Thursday, and it’s usually the moment in budget-writing years when legislators get serious about creating the next one.

However, there will be more than the usual level of uncertainty in this year’s outlook because of the change in federal taxes and spending being forged by President Donald Trump and the Republican-controlled Congress. Trump is also risking recession by firing so many federal employees.

Many Minnesotans will feel hardship from the decisions in both Washington and St. Paul. The state economy as a whole will slow down for a year or so.

This is not a new idea of mine. I wrote it last summer after President Joe Biden’s terrible debate performance against Trump and I wrote it again after the November election.

I try to hold my ideas lightly and remain open to having them tested and refuted. However, it’s increasingly clear that whatever upside there may be to Trump’s economic ideas, there will be pain first.

Cuts in the size of the federal government may yield long-term savings, but first they will boost unemployment and slow the economy, perhaps pushing it into recession.

Tariffs may eventually bring more revenue to the federal government, but first they will raise consumer prices and disrupt supply chains.

Deportations of immigrants may eventually lift wage growth, but first they will hurt farms, health care facilities, construction firms, meatpacking plants and other businesses where Americans haven’t wanted to work.

While risk always exists, few leaders create economic policy that guarantees pain in exchange for uncertain payoff. Trump and Elon Musk, wielding unchecked power over government spending, acknowledge the tradeoff. Many of their supporters, including some on Wall Street, gloss over them.

“WILL THERE BE SOME PAIN? YES, MAYBE (AND MAYBE NOT!),” Trump wrote in a post full of capital letters about tariffs on Truth Social on Feb. 2. “BUT WE WILL MAKE AMERICA GREAT AGAIN, AND IT WILL ALL BE WORTH THE PRICE THAT MUST BE PAID.”

In the presidential campaign, Trump rarely talked about costs, but he didn’t say his plans were free. He won a plurality of American voters, including 47% of Minnesota voters.

Trump doesn’t have to seek their approval again. Helped by Musk’s money and threats to fund political opponents, he has mostly sidelined Republicans who will face voters again.

Not all of them, fortunately. Trump’s new Cabinet leaders are sparring with Musk over personnel and spending. Some Minnesota GOP lawmakers last week pressed their congressional colleagues not to go along with the budget plan that passed the House calling for big cuts in Medicaid, which could affect health care access for hundreds of thousands of elderly and lower-income Minnesotans.

How should Minnesota’s Legislature, with a nearly even partisan split and an economy running cooler than the country’s as a whole, respond as they make a new state budget?

Prudently, with a focus on the cake, not the frosting. Get the state’s schools and elderly — who collective consume about two-thirds of state funds — through the next two years. Forget subsidies on e-bikes (small as they may be) and the like.

To begin, recognize there was always going to be a lot of noise in St. Paul this year about “spending cuts” and cut through it. Under a DFL trifecta, the Legislature and Gov. Tim Walz two years ago spent much of a surplus that accumulated over the prior four years. Projected spending, which was lower than revenue before the 2023 session, has been above it since.

Spending in the 2024-25 biennium rose to $71 billion, from $52 billion in 2022-23. About one-fourth of the increase was one-time spending, which set the expectation by state budget analysts for spending in 2026-27 (which begins this July 1) at around $67 billion.

Which means this is a rare moment when state spending throttles back not because of a recession. After state budget officials in May signaled the likelihood of a deficit in the 2028-29 period, Walz notched back 2026-27 spending to $66 billion in his budget proposal.

House Speaker Lisa Demuth, R-Cold Spring, told me Republicans would wait to come out with a spending target until after the new outlook is presented this week. “We know we’re not going to be at the budget that we’re at right now,” she said. “It’ll be less.”

Demuth is reluctant about Walz’s proposal to slow the growth of payments to Minnesotans on disability, another sign of tension in Republican ranks over what to do about Medicaid and other entitlements.

Once you cut through the noise in the state about lower spending, the second thing to do is recognize that Trump’s plans at the federal level may also hurt Minnesota’s ability to collect revenue. That would upend the typical line from Minnesota Republicans that we don’t have a revenue problem, we have a spending problem.

State Rep. Zack Stephenson, DFL-Coon Rapids and leader on the House Ways and Means Committee, told me he thinks the new budget outlook on Thursday will already reflect some damage from Trump’s tariff policies. That’s something to keep an eye on, though the threatened tariffs on Canada that would be most harmful to Minnesota businesses have yet to be implemented.

“I also believe that the forecast won’t tell the whole story of the damage the Trump administration will do to Minnesota’s budget because there’s more things coming,” Stephenson added.

Indeed, with so much of Trump’s spending and tax plans still to be refined and approved in Congress, whatever budget Minnesota’s lawmakers get done this spring is sure to be re-opened and modified next year.