Gov. Tim Walz and top DFL leaders this week criticized the idea of eliminating a state tax on Social Security benefits despite the fact that many Democrats campaigned on it in critical swing districts that gave the party full control of state government.

Walz said he would push to reduce the Social Security tax for more people in Minnesota, where a majority of seniors are already exempt. But the governor said fully eliminating the tax — a policy that Walz agreed to in a compromise deal with Republicans earlier this year  — would benefit the wealthy.

“The only thing I can pledge you for certain around taxes is I will not be proposing a tax cut for the wealthiest of Minnesotans,” Walz said at a news conference Tuesday. “I don’t know if the richest Minnesotans, billionaires, need a tax cut on Social Security, but we can have that conversation.”

Incoming Senate Majority Leader Kari Dziedzic, DFL-Minneapolis, and both House Speaker Melissa Hortman, DFL-Brooklyn Park, and new House Majority Leader Jamie Long, DFL-Minneapolis, echoed Walz’s argument.

“I’m on the record for having deep concerns about that,” Dziedzic said at the news conference. “It’s about $500 million a year.”

The comments drew a sharp response from a few newly elected Democrats joining the narrowly divided state Senate where the DFL will have a one-seat advantage. They had joined Republicans on the campaign trail in promising to make a repeal of the tax a top budget priority. 

“Not only does it burden many of Minnesota’s seniors, it also leads to retirees leaving the state for others where this benefit is not taxed. This is unacceptable,” said incoming DFL Sens. Rob Kupec of Moorhead, Heather Gustafson of Vadnais Heights, Judy Seeberger of Afton and Grant Hauschild of Hermantown in a joint written statement.

And another Greater Minnesota DFLer, Sen. Nick Frentz of North Mankato, said Wednesday during a legislative preview that he’d also support repealing the Social Security tax. 

“There is room for tax relief,” Frentz said. “I personally would vote yes on a full repeal of Social Security taxes.”

Who benefits from repealing the state Social Security tax

Only a few months ago, in May, DFL leaders agreed to fully eliminate the Social Security tax as part of a deal struck with Republicans in May to pass a $3.88 billion tax bill. At the time, the GOP had a majority in the state Senate.

The price tag for repealing the Social Security tax would have reduced Minnesota tax collections by $509.6 million in 2022 and by $1.12 billion in the following two-year budget.

Social Security benefits are taxed by the federal government depending on a taxpayer’s overall income. About a dozen states collect taxes on Social Security, though Minnesota and others exempt people at lower income levels.

Right now, about 55 percent of the roughly 400,000 people who receive Social Security in Minnesota don’t pay taxes on the benefits. The bulk of the elimination would help taxpayers who have $100,000 or more in total income, according to a Senate analysis.

That Senate research found people with incomes between $50,000 and $75,000 a year would save an average of $733 per year. Those making more than $500,000 would save $2,397.

But the deal, which Walz praised on the campaign trail, fell apart over broader disagreements on spending Minnesota’s large budget surplus. In an economic forecast released at the Capitol on Tuesday, state officials estimated that surplus at a whopping $17.6 billion.

The GOP has long pushed to repeal the Social Security tax. Republican lawmakers have argued that seniors deserve the benefits after paying into the program for years. And some say it would help keep seniors from leaving Minnesota for friendlier tax environments.

DFL disagreement

A contingent of Democrats like Walz have proposed exempting more seniors from the tax, but many have opposed fully repealing the tax because of its benefits to wealthy retirees. 

Some DFLers, however, have argued for getting rid of the tax altogether.

That includes a handful of Democrats who won key legislative seats that helped give the DFL control of the House and Senate.

Incoming Sens. Kupec, Gustafson, Seeberger and Hauschild said voters care about the issue, and they promised eliminating the state tax on Social Security will be their “top budget priority going into the legislative session,” especially after the “historic budget forecast announced yesterday.”

In the House, some DFL candidates like Rep. Dave Lislegard of Aurora also campaigned on the issue. Democrats will have a narrow majority in that chamber, as well.

Incoming House Minority Leader Lisa Demuth, a Republican from Cold Spring, told reporters that lawmakers should end the tax “across the board.”

“That’s what we talked about on the campaign trail,” she said.

But Walz said Tuesday that when people have lots of retirement income, the “impact of that Social Security tax is almost unnoticeable to the folks making that much.” He also said revenue from that tax “goes back into delivering for seniors.”

Like Walz, Dziedzic, Long and Hortman said repealing the tax is not fully out of the question. Lawmakers will still have to meet and debate the issue to see if there is enough support for such a policy. “As caucus leader I will lead the discussion with our caucus and we will make that decision jointly,” said Dziedzic, who acknowledged it was a campaign issue for some incoming lawmakers.

At a legislative preview panel on Wednesday, Hortman said there is bipartisan support for eliminating the state tax on Social Security, and she said the issue could help make Minnesota more competitive with other states in keeping or attracting retirees. “We’ll certainly take a look at that, it’s in the mix.”

But Hortman also said spending on paid family leave, child care and increasing pay for people in “our care sectors” are higher priorities. And she said she’s inclined to help a young teacher making $36,000 a year rather than cutting Social Security taxes for a millionaire. Eliminating the tax “right now in Minnesota, that largely means we would be giving a tax cut to wealthier people who are not at the peak of their spending on child care and housing and all of the other things that go with that,” Hortman said.

“What is the right investment for the state of Minnesota?” Hortman said. “What’s going to be returned into the economy the most? Who needs it for child care, who needs it for housing?”