ST. PAUL — Minnesota House Democrats on Monday, April 17, unveiled details of a tax plan that will include direct payments to Minnesota taxpayers, a tax cut on Social Security income and a new tax credit for families with children.
Under the proposed tax plan, Minnesota would return about $1.25 billion of the record $17.5 billion budget surplus in the form of a tax rebate. About 2.5 million tax returns would qualify for checks starting at $275, according to House Democrats. It’s significantly lower than the $1,000 starting point proposed by Gov. Tim Walz.
Joint filers would get $550 checks, and there would be $275 for each dependent up to three dependents. The yearly income cutoff on checks would be $75,000 for single filers and $150,000 for joint filers.
Tax cuts and credits are just one component of the bill, which majority Democratic-Farmer-Labor lawmakers say will deliver aid to Minnesotans who need it most. The proposal also includes the creation of a new “millionaires tax” on the top 0.8% of Minnesota earners and new offshore income reporting requirements for corporations. Those could bring in more than $1 billion in the next two years.
“The pandemic laid bare the harsh realities of this economy for working-class and middle-class Minnesotans,” House Taxes Committee Chair Aisha Gomez, DFL-Minneapolis, told reporters at a Capitol press briefing. “While corporations posted record profits and the rich became even richer, so many in our communities couldn't stay home.”
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With about $3 billion in rebates, credits and tax cuts to Social Security, House DFLers have characterized their tax plan as the “largest tax cut in state history.” But minority Republicans questioned the need for any new taxes when the state already has an unprecedented budget surplus.
The tax bill does not contain all the new taxes proposed by Democrats. Other packages carry new fees, such as a new 75-cent delivery fee for things like food delivery and Amazon shipments. Multiple bills will form the overall budget, which under the current DFL framework, would add nearly $18 billion on top of the current more than $50 billion two-year budget.
GOP senators on Monday pointed to nearly $10 billion in new taxes in DFL-backed bills moving through committees, including more than $1 billion in new payroll taxes for a paid family and medical leave program.
“The Democrats’ budget will lead to higher taxes now and even higher taxes into the future to support their aggressive government growth,” said Senate Minority Leader Mark Johnson, R-East Grand Forks. “Democrats in St. Paul are failing their campaign promises of lowering taxes for Minnesotans.”
Is any bill perfect? No. But is this a bill I can get behind and support? You're exactly right.
Republicans in the minority in both the Senate and House don’t have much sway over the tax bills, but some DFL senators share Republicans’ goal of a complete repeal of the state income tax on Social Security. Minnesota is just one of 11 states that have the tax.
But House Democrats in their tax plan are backing a partial roll-back of the Social Security income tax rather than a full repeal. They argue top earners don’t need the tax cut, and the state would lose more than $600 million a year in revenue if lawmakers eliminated the tax altogether.
Under the House plan, married and joint filers earning less than $100,000 a year would pay no tax on Social Security, and single filers would be cut off at $78,000. From those income levels, the exemption would start to phase out. The change would affect about 280,000 returns, according to Gomez.
Rep. Dave Lislegard, DFL-Aurora, had sponsored a bill for a full repeal, but at the Monday news conference he told reporters that the final tax omnibus was the product of compromise.
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"Is any bill perfect? No. But is this a bill I can get behind and support? You're exactly right," he said.
Lislegard pointed out that the divided Legislature last year reached a tax deal that would have eliminated the Social Security tax, but it never reached the governor's desk in a session marked by partisan gridlock.
A “child and working family tax credit” would provide up to $1,175 per child for low-income households. An expanded K-12 education credit would provide $1,500 per child. In total, those would bring about $1.3 billion in tax cuts.
DFLers say the expanded credit will reduce child poverty in Minnesota by 25%. Walz and DFL legislative leaders have said their central priority for the 2023 legislative session was boosting programs that help families and children.
Monday’s bill unveiling offers a look at the direction of budget negotiations between the DFL majorities in the Senate and House and the governor. While DFL majorities and the governor reached a general framework on state budget targets last month, the broad targets left many specifics up to lawmakers’ discretion.
The Minnesota House Taxes Committee is set to take up the bill Tuesday. In a news release, Senate Tax Chair Ann Rest, DFL-New Hope, said the Senate tax bill would be announced in “coming days.”
There are already some points of departure between the Senate and House on taxes and fees in other bills. For instance, the Senate transportation bill does not contain the 75-cent delivery fee, while the House version does.
Any differences between the House and Senate budget bills must be reconciled in a conference committee in both chambers and approved once again before reaching the governor's desk.
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Follow Alex Derosier on Twitter @xanderosier or email aderosier@forumcomm.com .
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