Minnesota lawmakers have agreed to what they say is the largest tax cut in state history.
But it may only happen if the Legislature can strike a deal on, well, dozens of other issues before they are set to adjourn at 11:59 p.m. on Sunday.
On Saturday, House and Senate leaders announced a final tax bill, a major plank in their so-called “4-4-4” deal to spend $4 billion of their historic surplus over the next three years on tax cuts, $4 billion on new spending and leave $4 billion remaining in reserves.
Negotiations are ongoing on the last of those “4s,” which includes roughly $1 billion for education, $1 billion for health and human services and $450 million for public safety. House Speaker Melissa Hortman has said she will not move the tax bill “until everything is done.” A special legislative session is uncertain if lawmakers miss the Sunday deadline.
“We must not let this transforming, historic tax bill be held hostage by many of these other things,” said Sen. Carla Nelson, a Rochester Republican who chairs the Senate’s Taxes Committee, imploring lawmakers to reach deals.
“All the parts of the agreement have to be completed,” said Rep. Paul Marquart, a Dilworth Democrat who chairs the House’s Tax Committee.
The final tax bill, for the record, is only about $3.88 billion.
The plan would eliminate a state tax on Social Security benefits, which has been a priority for the Republican-led Senate. It also expands and simplifies a credit for renters, which was a top priority of the DFL-majority House. And it expands a child tax credit, trims taxes on the first tier of income taxes and slashes property taxes.
Social Security tax eliminated
At a high level, the bill is made up almost entirely of income tax cuts. A smaller portion of the bill is property tax reductions.
The priciest item is the repeal of the state income tax on Social Security. It’s expected to reduce Minnesota tax collections in the current budget by $509.6 million and slash collections in the next two-year budget by another $1.12 billion.
Right now, Social Security benefits are taxed by the federal government depending on the overall income of a taxpayer. Only 13 states collect any taxes on Social Security, though Minnesota and many others do exempt people at lower income levels.
About 55 percent of the 400,000 people who receive Social Security in Minnesota don’t pay taxes on the benefits. Eliminating the state tax on benefits would mostly help taxpayers who have $100,000 or more in total income, the Senate has estimated.
That Senate analysis says people with incomes between $50,000 and $75,000 each year would save each year an average of $733. People with income over $500,000 would save $2,397.
Republicans and some Democrats had pushed for the repeal of the state’s Social Security tax by saying it would help seniors and remove one of the reasons retirees flee Minnesota.
Nelson said Minnesota should join the majority of states that don’t tax the benefits. “Minnesota seniors are never again going to see their social security checks taxed,” she said.
For Republicans, the tax elimination — and other cuts in the bill — fulfilled a promise at the start of the year and their near-constant refrain for Minnesotans to get “permanent ongoing tax relief.”
[image_credit]MinnPost photo by Walker Orenstein[/image_credit][image_caption]Marquart, left, and Nelson, second from left, signing their conference committee report.[/image_caption]
Marquart played down that concern, saying other DFLers like Rep. Dave Lislegard of Aurora had pushed for the full repeal this legislative session. “That was always a priority,” Marquart said. “The matter was always cost.”
Also in the bill: renters credit, income tax cut, child credit
The second-biggest item in the tax bill is a DFL priority: expanding and simplifying a tax credit for renters.
Under the plan, lawmakers will create a refundable income tax credit for renters to replace the existing refund, which is part of property tax law. Currently, families with incomes of $68,000 or less can get a refund equal to 17 percent of their rent paid. But those taxpayers must fill out a separate application for a refund paid in August.
The new version makes the credit part of the income tax filing. Marquart said that simplification will increase the number of people taking advantage of it — from 318,000 applicants to 438,000. By shifting to the income tax, a taxpayer’s adjusted gross income — their taxable income — will be used to determine eligibility, not total income as with the current separate refund filing. That will make more taxpayers eligible for the credit, as will the changes to Social Security taxation. The income changes will make another 36,000 taxpayers eligible.
All of those changes will cost the state about $670 million over the next three years, including roughly $372 million in the current budget.
The agreement also increases the homestead property tax refund and sends $60 million to all but the wealthiest school districts to buy down their school levies on a dollar for dollar basis. The same bill also addresses local government aid (LGA) and county program aid — a complex system of sending money to cities and counties for operating costs and to help keep property taxes lower. The LGA distribution will increase by $30 million, to $594 million, and the county program aid will also increase by $30 million, to $280 million.
Another measure celebrated by lawmakers is a reduction in the lowest income tax tier from 5.35 percent to 5.1 percent. That is expected to reduce state collections by $666 million over three years. It is far less than what Senate Republicans had initially proposed, a cut from 5.35 percent to 2.8 percent.
Legislators estimate the average family will get a tax cut of $103 per year, or roughly $4 a paycheck, but it will affect all tax filers.
Lawmakers also plan to approve a tax credit to help families with children and dependents. Families will receive a $2,000 refundable tax credit for each child age four or under. Refundable credits provide that money to taxpayers regardless of whether they have state tax liability.
The bill also includes an expanded K-12 education tax credit, extends the historic preservation tax credit and, perhaps more importantly for the preservation community, removes a sunset provision on the state program used to help pay for the reuse of historic structures.
In all, Nelson said it was legislators’ duty — amid high gas prices, “staggering” inflation and rising food costs — “to get these resources back into the hands of Minnesotans to help them better afford their lives.”
Marquart said the bill is “going to positively impact in a real and meaningful way families and senior citizens and businesses across the state.”
Lawmakers did fund one-time rebate checks as proposed by Gov. Tim Walz.
“Crunch time” for lawmakers
Marquart and Nelson announced the deal at a joint news conference Saturday, and they started that event by signing a copy of the tax bill. But they also noted their signatures on a desk in the basement of the Capitol aren’t enough to get the bill to Walz’s desk.
And though House and Senate leaders have struck deals on some smaller bills dealing on issues like higher education, many others issues remain at an impasse.
One bill particularly at risk of failure is on education, where a tense committee meeting on Sunday ended with Republican Sen. Roger Chamberlain gavelling out the session while his counterpart in negotiations, DFL Rep. Jim Davnie, was still talking.
“We don’t have days and days we hardly have hours,” Chamberlain said. The GOP wants to use most of the $1 billion agreed to reimburse districts for special education costs that most districts currently pay for with general education dollars. The House wants to use more of the cash on other priorities like mental health grants. “We will not take another dime from special ed,” Chamberlain said.
Senate Majority Leader Jeremy Miller, R-Winona, said earlier Saturday he thinks all the remaining bills “are within reach,” and said he’s still optimistic. He said he doesn’t want an extension from the governor and hadn’t heard anything indicating Walz would be open to calling a special session, anyway.
[image_credit]MinnPost photo by Walker Orenstein[/image_credit][image_caption]Senate Majority Leader Jeremy Miller confirmed the basics of the tax deal and said the remaining bills are “within reach.”[/image_caption]
What a joke, a vicious, stupid, deliberate insult. What benefit is a tax cut of a few dollars, or a few hundred dollars to people who actually work for a living. Christ, I’m so tired of this right-wing squealing and squalling about tax cuts that actually only benefit people who don’t need it, and don’t deserve it.
Before you do too much squalling you should note the right wingers proposed an income tax rate that would have reduced the tax rate for lower incomes from 5.35% (which is higher than most states tax on high earners) to 2.8% while democrats proposed 5.1%. A 2.5% tax reduction for a couple making $41,000 in income is over $1,000 on going. This is a better deal than Walz’s one time check for $350 dollars or a few tanks of gas and a trip to the grocery store.
Most retirees worked for a living. They also pay taxes , and high income retirees pay more taxes than lower income earners.
Half a billion dollar ‘wealth transfer’ from wage slaves to the ‘retired’ Minnesotans, many with 100-thousand plus in annual income. Future generations will see cost of state government shifted to younger people at a time of aging demographics. Great politics but questionable tax fairness. The Legislature set this situation up in 2019 when it eliminated state level income taxes on low income Social Security benefit recipients, and gradually phased in for mid income. The only Social Security recipients left to benefit from eliminating the state income tax are the least likely to need/notice the extra cash.
The math is somewhat different for self-employed, contract, farmers, small business proprietorship taxpayers, AKA traditionally Republican types. They paid both employee and employer contributions to Social Security, but I haven’t seen anyone make an argument at that level of detail.
“Minnesota seniors are never again going to see their social security checks taxed,”
Well maybe not at the state level, but federal taxes still apply, minus 15% designed to avoid double taxing original paycheck withholding. SSA says that about half of recipients end up paying at least some federal income taxes on their annual benefit income.
I’ll benefit from this tax break, my first vote for president was in 1972 for Geoge McGovern. He was highly criticized for proposal to give each citizen a $1000 ‘Demogrant’. Republicans said he was buying votes. Some things never change.
We have no surplus, we have money that we are not spending on things that need to be done. If your roof is leaking and you receive an unexpected windfall you have surplus cash but if you’re smart you fix the damn roof. We have bridges that need repairing. In 2018 we had 709 bridges that were structurally deficient. We have a crisis in Health Care. Rural Hospitals are closing and causing huge gaps in access to care in out state areas. We have an aging population and health care issues will only get worse. We have a huge problem with water quality in the southwestern part of the state. Small towns are dealing with Nitrate Pollution in their city wells having to drill deeper, if they can, or install costly filtration systems. These are just a few. I know its politically popular to “give people their money back” but its really foolish to ignore our leaky roof just to buy votes. Some folks can really use a few bucks from the state, but lets be honest, the folks who benefit from tax cuts are folks making the most money and they have been doing very well for themselves over the last few decades.
If rural people cared about their hospitals closing, they’d stop voting for Republican legislators. If they don’t care about their hospitals, it’s really hard for me to.
Couple of things to remember, 1, historic surpluses came from Federal Government, will go away. 2, 4 billion in program spending will stay with us forever. Government programs never go away, they just get more money (taxpayers) thrown at them.
If you want to see crazy policies give politicians billions of taxpayer dollars and sit back. There will be a time that the Federal Government will not give the state 78 BILLION in relief taxpayer dollars. All of these programs will remain and be funded by Minnesotans. Good luck….
Am all in favor of strict accounting for government spending, proving that tax money is well spent. Wondering why the argument is always that government spending should not grow. Wouldn’t tax revenue increase with growing population? Growing income? Economic growth? If government spending is held back while resources and needs grow, isn’t that a prescription for falling behind? The fallacy I see is politicians reluctant to match services to needs, a roller coaster alternately falling behind then catching up depending on which camp is in office. Makes for a useful political football and talking points but not very predictable or stable.
Interesting how politicians complain about inflation and then advocate for policies to make inflation worse.
The largest Republican’t TAX INCREASE in MN history (thus far). Wait until a few years go by. Then see how large their NEXT RECORD HIGH TAX INCREASE shall be.
I would argue that the largest tax increase in Minnesota history was the enactment of the state sales tax (the sales tax increased from 0% to 3%). The caucus in charge of passing it was the Conservative caucus, which morphed with little change into the Republican caucus a few years later.
Gosh how did I miss this: “…saying it would help seniors and remove one of the reasons retirees flee Minnesota.” Yeah, its that pesky SS tax that drives seniors out of the state, not 20 below temps, 6 months of Ice and Snow, heck no Seniors Love that sh*t. Its the couple hundred bucks they pay every year in Income tax. Good lord. Oh and a lot of them return, once they get start needing to see a Doctor and realize that our “high tax state” has a pretty damn good health care system.
I suspect that few retired people move to other states to avoid taxes just on Social Security income – the amounts in almost all cases are far too small to make a meaningful difference. But people with significant other retirement income sources – pensions and 401(k) – can realize a tax cut in the tens of thousands of dollars or more. I was a federal employee for many years, and my co-workers who stayed until retirement (I didn’t) all have $100,000+/year civil service pensions, with full cost of living raises every year. Combine $100,000+ with required minimum distributions on 401(k)/IRA money and sometimes other job income and you can save plenty by changing residency to Florida or Texas – no state income tax. So big tax savings do in fact inspire many retired people to move out of high tax states. I lived in south Florida for 12 months in 1987-88 and met many New Yorkers there who relocated for just those reasons. The irony was that many of those New Yorkers were diehard Democrats and retired public employees who thought then-President Reagan only favored the rich with tax cuts.