Mini-tax bill moves fast at Capitol, but big breaks will wait
There’s a tax bill already moving at the Minnesota Capitol just days into the new legislative session. But this is the easy part — syncing up state tax deductions to federal changes of recent years.
The Legislature will take more time deciding on possible rebate checks and other tax breaks where there's much less agreement among lawmakers.
Updates to Minnesota’s tax code happen a lot. They are often done to line up deductions allowed at the federal level so they also apply to state income tax forms. During the pandemic, federal changes happened at a much quicker clip than at the state.
Minnesota lawmakers are feeling some pressure to catch up, as House Taxes Chair Aisha Gomez, DFL-Minneapolis, told her colleagues Wednesday.
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“Most of it, in addition to the kind of business extenders, is really about responding to COVID,” Gomez said. “And so it's the right thing for us to not create a situation where people have to introduce more and more complexity into their tax filing related to those things.”
The bill that sailed through the House Taxes Committee involves a collective $100 million in foregone tax revenue over the next couple of years.
And speed is important, said Revenue Commissioner Paul Marquart.
“This is a major priority for Governor Walz, Lieutenant Governor Flanagan, to get this done quickly, to get overdue tax cuts to individuals and families and businesses, and hopefully also make the filing for 2022 simpler and less costly for taxpayers,” Marquart said.
A Jan. 13 deadline would give his agency time to update forms and help vendors change their software before filing starts later in the month, said Marquart, a former DFL House taxes chair himself.
Much of the bill involves deductions for businesses, such as restaurants, entertainment venues and other small operations that received special grants or loans to help them through COVID-19 disruptions. But there are also various corporate and individual income tax deductions, including some around student loans, charitable contributions or mortgage debt forgiveness.
Some provisions are retroactive.
The bill gets its first hearing Thursday in the Senate Taxes Committee. That chamber’s chair, Sen. Ann Rest, DFL-New Hope, said it will have a big impact.
“Maybe a half a million people will not have to go back and file an amended return in order to take advantage of conformity,” Rest said. “It'll all be on their 2022 tax return.”
Rest said she’s working toward the goal of having the bill on the governor’s desk by the end of next week. To do that, she’ll have to keep it clean — deflecting attempts to hang other tax policy or tax cut proposals onto it.
“It’s not going to be a Christmas tree or any other kind of tree for that matter,” Rest said.
Republicans are generally on board. The federal sync-up usually isn’t controversial, said House Minority Leader Lisa Demuth, R-Cold Spring.
“Tax conformity is something that has been bipartisan in the past, and we need to get that done,” Demuth said. “We will look at that language as it comes forward.”
But Republicans say tax relief can’t stop there. They’ll keep pressing for a broader set of tax breaks using Minnesota’s $17.6 billion budget surplus. Top on their list is a phaseout of the tax on Social Security income.
Sen. Carla Nelson, R-Rochester, the prior Taxes Committee chair, is still bothered it didn’t get done last year despite being on the cusp of approval.
“It's a double taxation,” Nelson said. “We're one of the few states that do it.”
Some DFLers in the 34-33 Senate have introduced bills to get there, but that’s not the prevailing position of the majority caucus or Walz. Most Democrats want a more-targeted drawdown of the tax.
Walz is also pushing for rebate checks. Last year he called for checks of up to $2,000. Administration officials say a revision to his proposal is in process.
Rest, the Senate tax chair, said while she personally supports a rebate, the DFL governor has a big sell ahead of him.
“The rebate checks have a bit of controversy to them,” Rest said. “So there wouldn't be a caucus position, perhaps on that.”
House Speaker Melissa Hortman, DFL-Brooklyn Park, said this week that she sees a path, but it might not be as expansive of a rebate as Walz has promoted.
“What the governor said in his inaugural ceremony about eliminating childhood poverty was really important,” Hortman said. “I think there's a way for his brilliant new revenue commissioner and my brilliant tax chair to figure out something that's going to work that both addresses child poverty and helps return some of the surplus to Minnesotans.”