ST. PAUL — A Walz administration proposal to send out $500 rebate checks to Minnesota taxpayers is off the table at the Capitol — at least for now — as state lawmakers weigh re-writes to the state's tax codes.
Leaders of the Minnesota House and Senate Tax Committees this week introduced their proposals to change the state's tax laws. The plans came before separate committees on Tuesday, April 5, and they set goalposts for Republican and Democratic priorities with billions of dollars between them.
Republican priorities included dropping the state income tax, eliminating the tax on social security and conforming the state tax code to federal law. Meanwhile, Democrats said they would take a more targeted approach that included tax credits and rebates for child care, renters and homestead credits and a bigger student loan tax credit.
Both bills are set to move through legislative committees this week before coming up for a floor vote in their respective chambers, and from there, legislators will have to negotiate a compromise proposal that could pass a GOP-led Senate and a DFL-controlled House before getting signed into law by Gov. Tim Walz.
One commonality between the two, however, was that neither included Walz's proposal to send out $500 checks to taxpayers that made as much as $164,400 a year. The Democratic-Farmer-Labor governor last month said the direct payments to Minnesotans could stave off inflated prices for household goods and could bolster the state's economy.
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Republican lawmakers long called the plan a "gimmick," while Democrats at the Capitol this week said their targeted credits could provide more help to families, workers and seniors, the groups they said could use the most help right now.
GOP leaders in the Minnesota Senate proposed cutting the state's first income tax bracket from 5.35% to 2.8%, a move that would affect all those that pay the tax. Under the proposal, a couple that made up to $100,000 a year would see roughly $1000 in savings.
They also recommended dropping a state tax on social security benefits and aligning state tax codes with federal laws, in an effort to make it easier for Minnesotans to file their taxes. If approved, the changes would cost $3.3 billion next year and $5 billion in the two years that followed.
The state's $9.25 billion budget surplus would more than cover the cuts and they said taxpayers that helped pay into the surplus should see their payments returned next year, and beyond, Republicans said.
“It is time that we use this large, historic surplus to really right-size our tax code, to empower Minnesotans," the bill's author Sen. Carla Nelson, R-Rochester, told the Senate Tax Committee. "That proposal before you today is an effort to provide that much-needed permanent tax relief to all Minnesota taxpayers. If you pay taxes, you’re going to see a reduction."
Public education groups, union workers and Democratic-Farmer-Labor lawmakers and groups on Tuesday said the proposal would disproportionately benefit wealthy Minnesotans and would pull surplus dollars that could otherwise be used to fund state programs. They also noted that the tax cut would impact the state's budget moving into later years, which could affect the state's ability to pay for existing K-12 schools, public safety programs or health care services.
DFL leaders in the Minnesota House of Representatives on Tuesday put up their list of tax law priorities on Monday, including a heftier child tax credit, a provision eliminating state taxes on social security income for Minnesotans that make $75,000 or less a year and increasing renter and homestead tax credits. The changes, if approved, would cost $1.65 billion in the first year and $1.6 billion in the next two years.
The plan would create a one-time child tax credit rebate of $325 for children under 17 years old for single parents that make up to $70,000, and couples that make $140,000 or less, along with an ongoing credit of up to $3,000 per child under the age of five to help offset the cost of child care, with a cap of $7,500 per family. It would also boost funding to make roughly 520,000 more Minnesotans eligible for renter's or homestead tax credits and boost state student loan tax credits to $1,400 per person.
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"We have a very targeted, focused cut trying to make a difference in people's lives rather than giving tax breaks to millionaires who don't need it," House bill author Rep. Paul Marquart, DFL-Dilworth, told reporters. "When you look at what we laid out here for young families, ... or for workers and senior citizens, it's significant."
The House Tax Committee considered the bill but didn't take public testimony on Tuesday. Members were set to return Wednesday for additional testimony and debate on the bill.
Follow Dana Ferguson on Twitter @bydanaferguson , call 651-290-0707 or email dferguson@forumcomm.com.
