According to the Congressional Budget Office (CBO), the U.S. population is projected to reach 367 million in 2055. This is down from the 372 million projected earlier in January. The CBO expects slower growth between 2030 and 2055 compared to January projections, but long-term trends remain as previously predicted.
That is, around the globe, declining fertility rates will cause population growth to slow and even reverse in the coming decades. For the U.S., the CBO expects deaths to outnumber births starting in 2031.
This has significant policy implications for Minnesota, particularly as discussions about the state budget continue. Slowing population growth could constrain employment growth, dealing a heavy blow to tax revenues. Not to mention, an aging population will require increasing spending on public health programs, placing mounting strain on tax revenues.
Population vs. tax revenues and spending obligations
The tax base mainly grows through two ways: employment growth and/or per-worker (wage and salary) income growth. Slowing population limits employment growth. And with fewer workers available to work, incomes grow more slowly, and so does the tax base. Consequently, revenue collections also slow down.
In the February 2025 Budget Forecast, Minnesota Management and Budget (MMB) attributed Minnesota’s slowing employment growth — a trend that will likely continue — to shifting demographics. Consequently, MMB expects the increase in income per worker to be the main driver of tax base growth in Minnesota through FY 2029. However, a slowing economy could put a damper on that, too.
In the same forecast, MMB credited Medicaid as the leading driver of budget growth between FY2024 and FY2029. This is mainly due to growth in programs that target the elderly and individuals with disabilities. Shifting demographics beyond 2030 could likely result in increased pressure on tax revenues, particularly given the rising costs of healthcare.
Lawmakers beware
In all likelihood, slowing population growth is poised to become the single biggest issue facing Minnesota’s budget in the decades ahead. Ignoring this reality in today’s fiscal discussions will only compound future shortfalls.
With fewer workers to sustain employment and income growth, the tax base will expand more slowly — or even shrink — just as demand for costly services like healthcare accelerates.
To better position Minnesota for the challenges ahead, lawmakers should think beyond the tax-and-spend policies that have dominated recent legislative sessions and seriously consider enacting sustainable spending reforms and pro-growth policies.