Governor Walz gave his final State of the State address on Tuesday. Lamenting affordability challenges plaguing Minnesotans, he touted his proposal to expand the Dependent Care Tax Credit to lower child care costs.
Anyone who’s been a new parent knows that you walk around with a laundry list of worries. And near the top of that list is the cost of childcare. That cost has skyrocketed in recent years, and it’s squeezing families in a way they can’t afford. Let’s do something about it. Tonight, I’m proposing a significant expansion of the Dependent Care Tax Credit for more than 100,000 families with young and school-aged kids — lowering the cost of child care by up to $3,000 for families with one child, and $6,000 for families with two or more kids under five.
Indeed, Minnesota is one of the least affordable states for center-based childcare. In 2024, parents in Minnesota spent over $20,000 — 18 percent of the median family income — to send an infant to a licensed daycare center. Minnesota ranked as the ninth-least affordable state nationwide.
Something must be done. However, solutions like tax credits fail to address why costs are high in the first place.
Infant childcare in South Dakota costs half as much as in Minnesota. In North Dakota, it is a third less costly. What separates Minnesota from the Dakotas is not the absence or existence of tax credits. Rather, stringent regulations in Minnesota drive providers out of the market, restricting supply and raising costs.
Figure 1: Center-Based Infant Care as a Percent of Median Family Income, 2024
In a Child Care Regulations Index published in February 2026, the Archbridge Institute ranked Minnesota as the 10th most burdensome state for childcare center rules. In the Midwest region, only Wisconsin, another high-cost state, had more stringent rules.
Unsurprisingly, North Dakota and South Dakota both impose relatively less burdensome rules compared to Minnesota. This suggests a strong link between regulatory stringency and cost. Numerous studies provide evidence of this relationship.
A 2022 analysis by researchers at the Federal Reserve Bank of St. Louis found, for instance, that
there is a negative relationship between child care affordability and the average child-staff ratio in each state.
That is, states that allow a higher number of children per caregiver — meaning that operating costs are distributed over many more families — see lower prices.
A 2017 journal study estimated that states could lower costs for center-based infant care by up to $1,890 by loosening staff-to-child ratios. Similarly, repealing rules that require a high school diploma for teachers could reduce costs by up to $4,350 per infant.
Contrary to Walz’s assertion, burdensome state regulations, not federal policies, are mainly responsible for childcare affordability challenges in Minnesota.
Expanding the Dependent Care Tax Credit won’t lower costs. It will simply shift them onto taxpayers. Even worse, if the supply of childcare slots remains stagnant, the resulting boost in demand will likely drive prices even higher.