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With no votes to spare, the Minnesota House passed a bill Thursday that creates a new income tax bracket and provides targeted help to people and businesses financially affected by COVID-19 disruptions.

The plan approved on a 68-66 vote — two Democrats joined all Republicans in opposition —  raises almost $1 billion by boosting the tax rate on household income above $1 million and pulling in more from corporations who shift profits abroad.

Much of that money is spun back in the form of tax relief, including an expanded working family tax credit, property tax aid and a new business assistance program for places that struggled through pandemic shutdowns. 

“We tell our families and our workers and our small businesses, ‘We have your back. We’re not going to just settle for the status quo,’” said House Tax Chair Paul Marquart, DFL-Dilworth. 

Most businesses that received federal Payroll Protection Program help would be able to avoid taxes on forgiven loans, but that caps out at $350,000. Taxes also would be waived on extra unemployment assistance sent out by the federal government during the early months of the pandemic.

But Republicans said the plan doesn’t go far enough to protect businesses from the tax sting because PPP loans aren’t fully shielded, as a Senate-passed plan would be.

“They did the right thing but they’re not going to escape punishment by Minnesota Democrats,” said House Minority Leader Kurt Daudt, R-Zimmerman, of businesses that received the federal help. 

Rep. Pat Garofalo, R-Farmington, said the measures to raise taxes aren’t needed.

“Minnesota has a billion and a half-billion dollar budget surplus, has over two billion dollars in our budget reserves and has just received eight billion dollars in federal assistance,” he said. “The woke wing of the DFL has decided that’s not enough.”

But Rep. Kaohly Vang Her, DFL-St. Paul, defended the tax hikes. She sponsored the proposal to create a new 11.15 percent tax rate on taxable income in excess of $1 million for married filers and $500,000 for single filers.

She said people who fared well in a rough year should chip in to lift up those who didn’t.

“Some may say with a surplus we don’t need to raise taxes. I wish that were the case. Much of the support is one-time funding,” Her said. “We need to position ourselves for long-term success that requires a steady revenue stream.”

It won’t be the last word in a session budget debate. The House bill must be matched up with a considerably different Senate plan, which doesn’t raise taxes, that’s scheduled for a vote next week.

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Brian Bakst

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The proposal, which hinges on higher taxes on corporations and top earners, is integral to a House budget plan but must be aligned with a Senate version that doesn’t raise new revenue.

House OKs tax plan with breaks for some, hikes for others

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