Updated 4:05 p.m.
A tax cut debate at the state Capitol is shaping up over big, permanent rate cuts versus smaller, temporary cuts.
Minnesota Senate Republicans laid down a marker Thursday with a plan that would cut the lowest income tax rate nearly in half, which would reduce taxes for all filers.
Their proposal would take the bottom rate from 5.35 percent to 2.8 percent. That’s the amount assessed in taxes on earnings within that bracket — up to $28,000 for single filers and $41,000 for couples. Income above that is taxed at higher rates that gradually tick up.
They also want to exempt all Social Security income from taxes. Combined, the two changes would amount to $8.5 billion in tax reductions over three years and shave government revenue into the future.
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Senate Taxes Committee Chair Carla Nelson, R-Rochester, said every filer would pay less. She said Minnesota can afford it because of a projected $7.7 billion surplus in this budget that is estimated to last, to some degree, into future cycles.
“While our government accounts are full and overflowing. Minnesotans bank accounts are struggling. We are one of the highest tax states in the country,” Nelson said. “And one of the most valuable things that we can do right now to help struggling Minnesotans is to deliver immediate, permanent tax relief.”
DFL Gov. Tim Walz has proposed rebate checks of $175 to $350 that the highest earners wouldn’t be eligible to get. Walz has also recommended expanded education, dependent care and working family tax credits.
“While Republicans again propose tax cuts for the rich at the expense of funding schools, Governor Walz will continue to push for tax cuts for working families — as well as direct cash payments to Minnesotans — without taking from schools,” said Walz press secretary Claire Lancaster.
Majority House DFLers haven’t put out their own tax proposal yet.
House Taxes Committee Chair Paul Marquart, DFL-Dilworth, said any cuts should be targeted and combined with measures to contain child care and health care costs.
“We can’t do that if Republicans use the budget surplus to provide tax cuts for millionaires and billionaires who don’t need the state’s help,” Marquart said in a written statement.
Senate Majority Leader Jeremy Miller, R-Winona, said the bigger breaks are warranted at a time when food, energy and other household costs are putting a crimp in family budgets. Senate Republicans estimated that a family with a $100,000 annual income would pay $1,000 less in taxes each year.
“We feel that this is immediate relief. And the governor's proposal is so small the check barely scratches the surface of inflation,” he said. “So we rather focus on permanent, ongoing tax relief.”
Minnesota’s bottom tax bracket has been at 5.35 percent since 2000. Before that it was 5.5 percent.
Senate Minority Leader Melisa Lopez Franzen, DFL-Edina, expects a tax cut to pass this year given a historic surplus. But she worries about creating future problems.
“We need to make sure that we don't set ourselves up for a deficit in the future,” she said. “We're not going to have a $7.7 billion surplus every year. “
The Senate has already passed a $2.7 billion bill to replenish the state’s unemployment account, which is needed to head off an automatic increase in business taxes.