Senate GOP plan cuts income tax rate

A tax plan released Wednesday by Republicans who control the Minnesota Senate not only avoids tax increases but provides tax cuts totaling $800 million, according to Sen. Roger Chamberlain, a Republican from Lino Lakes, who chairs the taxes committee.

"A hundred percent of Minnesota taxpayers are going to be protected," he said. "They're either going to see nothing happen to them or they're going to see a significant decrease in their taxes, directly and indirectly. A hundred percent of Minnesota taxpayers will see relief, and that is what state needs at this moment in time."

The Senate bill reduces the second-tier income tax rate by a quarter of 1 percent. For married couples filing jointly, the second tier covers annual taxable income from about $39,000 to $154,000. For a single filer, it would be income between about $26,500 and $87,000.

It would be the first income tax rate cut in nearly two decades.

There are also tax breaks for business owners, investors, charitable gaming organizations, farmers and senior citizens.

Chamberlain said the money for tax cuts comes from several adjustments to the state tax code to align with recent federal changes.

"A variety of things that we do puts $800 million into the pot for us to use for tax relief for Minnesotans."

Sen. Ann Rest, DFL-New Hope, said she was disappointed that Republicans did not increase the Working Family Credit or state aid to cities and counties. Rest also pointed out that the state's highest earners would also benefit from the income tax rate cut because the cut would apply to a portion of their income.

"Seems to me that those dollars could have been much better directed toward true middle-income Minnesotans there and in property tax relief generally," she said. 

The Senate bill, unlike the House DFL plan, does not attempt to capture the foreign profits of corporations. The House bill would raise $1.2 billion in new revenue, largely from big business.

Another key difference is the Senate includes a provision opposed by most Democrats to allow tax breaks for Minnesotan who donate to private school scholarships.

Senate Majority Leader Paul Gazelka said the provision is small but important to Republicans.

"Opportunity Scholarships is a way for inner-city kids to have other opportunities in schools that are failing. It's not a big tax dollar amount that we're asking for, but we're just asking for a small change, and let's see if it works."

The Senate is expected to vote on the tax bill next week. The House has a vote scheduled Thursday for its tax bill. They'll have to work out their differences soon if they want to end the session by the May 20 deadline.

Republicans say their taxpayer protections contrast sharply with what Gov. Walz has in mind. They point to a new Department of Revenue analysis that shows the tax increases proposed by Walz would hit low-and- middle-income Minnesotans especially hard.

The report included the governor's proposed 20 cent gas tax increase and the extension of a 2 percent health care tax.

Walz welcomed the study but said it doesn't tell the whole story. He noted that his full budget proposal, which is based on additional tax revenue, provides many benefits to the same people.

"Why don't you go ask those groups that support lower-income or moderate-income people which proposals that they are supporting?" he asked. "I think you're going to see overwhelmingly that the things we are paying for with some of these revenues are the things that are going to make the biggest impact."