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Lawmakers still considering asking renters to pay for business tax cuts

Renters could face another nasty surprise in August: when they receive their refunds, they could find that policymakers have taken a further bite out of them.

Many Minnesotans put the final touches on their income tax forms yesterday, and as they did so, many also submitted their applications for state property tax refunds, which help homeowners and renters whose property taxes make up a high share of their incomes. The refund for renters, commonly called the Renters’ Credit, recognizes that renters pay property taxes through their rents.

Many of those renters will see smaller refund checks this year, as a result of a $26 million cut to the the Renters’ Credit agreed to last year. Nearly 300,000 Minnesota households will lose an average of $87 because of this cut and about 7,300 Minnesota households will lose their entire credit.

But renters could face another nasty surprise in August: when they receive their refunds, they could find that policymakers have taken a further bite out of them.

That’s because legislative leaders and Governor Dayton are in negotiations to craft a tax bill, and whether there will be further cuts to the Renters’ Credit is part of that discussion.

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Both the House and Senate tax bills propose a number of tax cuts for businesses and investors, primarily the gradual elimination of the state property tax paid by business and cabins. The Senate also includes a one-time tax cut for married couples. In both bills, the cost of these cuts grows over time, adding to next year’s budget shortfall, which is already measured at $1.1 billion, and digging the hole deeper as the years pass.

In the short term, however, state law requires that the budget be balanced. The House would pay for these tax cuts through deep cuts to the Renters’ Credit. If this proposal becomes law, 66,200 Minnesota households would no longer qualify for a property tax refund – one in five currently eligible households. The average refund would be cut by $213, a noticeable loss for people with modest incomes.

Governor Dayton and the Senate tax committee have been right to oppose cuts to the Renters’ Credit. As the Star Tribune and Rochester Post-Bulletin have noted, it is fundamentally unfair to ask Minnesota’s low- and moderate-income renters to pay for tax cuts. It’s counterproductive as well. Minnesotans buying goods and services in their local communities is what’s needed to help the fledgling economic recovery – but cuts to the Renters’ Credit means fewer customers at our local stores.

The Senate pays for the tax cuts in the short term with a $100 million transfer from the state’s budget reserve (or the Dayton administration can reduce this figure by making cuts in the state budget). Drawing on the budget reserve is risky.

If cutting the Renters’ Credit or drawing on the budget reserve are the only two options, that only underscores that the state cannot afford the proposed tax cuts.

The session will end soon, but it is not over yet. There still is time for Minnesotans to weigh in on this fundamental question of priorities.

Here are three actions you can take:

The Minnesota Council of Nonprofits has prepared information for Contacting Your Representatives and Helpful Tips for Contacting Legislators.

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This post was written by Nan Madden and originally published on Minnesota Budget Bites.