ST. PAUL — All Minnesota income tax filers would see their rates cut and residents who receive social security would see taxes on the benefit eliminated under an $8.51 billion proposal set forth Thursday, Feb. 24, by Republicans in the state Senate.
Following a record $7.75 billion budget surplus in the state, GOP lawmakers said they would push to send much of the money back to Minnesotans on a permanent basis. Their proposal would drop the first-tier income tax rate from 5.35% to 2.8%, resulting in a roughly $1,000 annual savings for a family that makes $100,000 a year. All income tax filers pay that first-tier rate on their earnings below $27,230 for single filers and $39,810 for couples.
Republicans said the plan would fall within the state's forecast budget surplus, at least within the first several years, and they could scale back the plan if an updated financial outlook on Monday, Feb. 28, cast a more pessimistic look on the state's budget picture. Lawmakers brought scissors as props to a news conference to illustrate the cuts they hoped to make.
“Senate Republicans have heard loud and clear from the people of Minnesota, ‘Send the money back, get that money back in the pockets of Minnesotans,’” Senate Majority Leader Jeremy Miller, R-Winona, said. “Today our proposal is going to do exactly that.”
Earlier in the week, a Senate panel on a bipartisan basis supported efforts to end Minnesota's income tax on social security benefits. Sen. Carla Nelson, R-Rochester, who chairs the Senate Tax Committee said the tax put Minnesota out of sync with a majority of states that don't impose taxes on the benefits and pushed many seniors to live elsewhere during the majority of the year so that they didn't have to face a tax hit for the income.
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Under her proposal, roughly 410,900 Minnesotans who pay the tax on Social Security benefits would see a roughly $1,313 tax reduction each year.
“Government is doing great but the problem is that Minnesotans are struggling. While our government accounts are full and overflowing, Minnesotans' bank accounts are struggling,” Nelson said. “It’s time that we right-size our Minnesota tax burden.”
Democrats, who control the Minnesota House of Representatives and the governor's seat, have proposed one-time direct payments with the budget surplus and said they could also boost funds to programs and state services to help those hit hardest by the pandemic.
They've said they oppose broad tax cuts that benefit top wage earners and on Thursday, House representatives pushed forward with a $1 billion proposal to send out $1,500 checks to front-line workers who remained on the job during the peak of the pandemic.
“Democrats don’t think millionaires and billionaires need a tax cut," House Tax Chair Paul Marquart, DFL-Dilworth, said, noting Democrats were prioritizing more targeted support to workers, low- and middle-income families and seniors.
"We can’t do that if Republicans use the budget surplus to provide tax cuts for millionaires and billionaires who don’t need the state’s help," he continued.
A spokeswoman for Gov. Tim Walz on Thursday said the governor would support tax cuts for working families and direct payments to Minnesotans "without taking money from schools."
Ultimately, plans that can appease both Democrats and Republicans in the divided Capitol will make it through the Legislature and get signed into law. Miller on Thursday said that leaders were starting to discuss early policy priorities and hoped that tax relief and repayment of the state's Unemployment Insurance Trust Fund would be "early wins."
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Follow Dana Ferguson on Twitter @bydanaferguson , call 651-290-0707 or email dferguson@forumcomm.com.
