House GOP tax cut plan a big break for Social Security earners

Greg Davids, left, and Steve Drazkowski
GOP Reps. Greg Davids, left, and Steve Drazkowski, right, explained the House Republican tax proposal on Wednesday.
Tim Pugmire | MPR News

Minnesota House Republicans on Wednesday outlined their $1.35 billion tax-cut plan, the biggest piece of which reduces the state tax on Social Security income.

With the latest economic forecast projecting a budget surplus of $1.65 billion, Republican House tax chair Greg Davids of Preston said it's time to provide Minnesotans some long overdue tax relief.

Davids said his bill uses $270 million to exempt more senior citizens from paying the Social Security tax by raising the income level where the tax kicks in.

"I'd like to just eliminate the tax on Social Security, but we don't have the funds to do that," he said. "So, what we're doing is we're raising the income threshold for our seniors so less of their income will be taxed and some people will not have to declare any of the income on their Social Security."

Right now, married couples pay no income tax on Social Security income of less than $32,000. Davids said Republicans would like to double that, but the numbers are still in flux.

The House Republican bill also gives farmers a break on their local school bond levy obligations and expands the credit available to families with child care expenses. It helps students and parents save for college and pay off college loans. An estimated 77,500 students could see an average $640 tax credit.

The plan includes $203 million to reduce the state property tax on businesses. It exempts the first $200,000 of property value, and also eliminates future, automatic increases.

Rep. Steve Drazkowski, R-Mazeppa, said making a change for businesses was a top priority.

"That special, extra property tax that businesses in Minnesota are forced to pay, on top the property taxes that they pay for local governments of all sorts, is just killing our businesses and the opportunity for job growth in our state," he said.

The plan also eliminates an automatic tax increase on cigarettes. "Talk about a tax that is so regressive," Davids said. "The most regressive tax I can think of is the cigarette tax."

The House proposal does not include the first-tier income tax reduction that Senate Republicans are pushing in their $900 million plan.

DFL House Minority Leader Melissa Hortman of Brooklyn Park said Republicans offered only limited details about their plan.

She said they were "conspicuously silent" on the working-family tax credit that Gov. Mark Dayton and other Democrats see as a priority.

"If the Republicans are seriously interested in getting a tax bill done," she said, "they need to look out for working families as Democrats are pushing for."

The House and Senate tax proposals far exceed the $300 million plan that Dayton released in January.

Both Republican plans revive most of the elements of the tax bill that Dayton pocket-vetoed last spring due to a potentially expensive drafting error. The governor's proposal is a pared down version.

Dayton said he was reserving judgement on both plans until he sees more details on how they fit into the broader state budget context.

Dayton is determined to protect the state's fiscal stability. He criticized Republicans for making tax cuts their top priority.

"There's this mythology that they perpetrate that the most important thing for everybody in Minnesota is to get a tax cut. Well, everybody would like a tax cut," Dayton said. "But you permanently reduce the amount of revenue that's coming into the state for the next biennium, and these numbers ratchet up ... They're setting the state up for another fiscal crash."

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