Multiple Minnesota tax rebate plans on the table, but path is murky
Republicans in the Minnesota Legislature rolled out a tax rebate proposal of their own Tuesday after labeling one from DFL Gov. Tim Walz an election-year gimmick last year. It’s part of a bigger tax-cut plan from the GOP that would consume much of the state’s giant surplus.
The joint proposal from House and Senate Republicans contains a mix of one-time and permanent tax cuts. The party is in the minority in both chambers so their ability to craft tax policy is limited this year.
But Republicans are more vocally supportive of a rebate-style giveback than Capitol Democrats, despite the fact Walz is again leading the charge.
“There was always an opportunity for a one-time rebate,” said Sen. Bill Weber, R-Luverne. “We just felt it had to be more than one time.”
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The Republican proposal would deliver $5 billion in rebates to all Minnesota households regardless of income. The rebates would amount to $1,250 for single filers and $2,500 for married filers.
The governor’s proposal would send up to $2,000 back to married couples with income below $150,000 and provide half that to singles also under a $75,000 income limit. There would be another $200 tacked on for up to three dependents. It would require about $4 billion from the state’s surplus.
It’s unclear how viable either rebate plan is in the DFL-led Legislature.
The Senate Taxes Committee is due to hear the Walz proposal on Wednesday.
House Taxes Committee Chair Aisha Gomez, DFL-Minneapolis, declined comment.
House Speaker Melissa Hortman, DFL-Brooklyn Park, said discussions are ongoing about how much of the $17.5 billion surplus will be directed to tax relief and in what form.
“We'll spend some time talking with the governor and with our tax chairs and with the Revenue Commissioner about the best way to structure tax cuts for the people in Minnesota,” she said Monday. “I think that there certainly will be tax cuts in this budget.”
Revenue Commissioner Paul Marquart said his agency is still working on ways to keep any rebate from being subject to federal taxes. Other states recently won a reprieve from the IRS on rebates they approved, but the federal government is considering them on a case-by-case basis.
Legislative Republicans also said they would push for an $1,800 per-child tax credit that would last for two years.
House DFLers have advanced a proposal that would provide up to $3,000 in tax credits tied to children under five years old and a lesser amount for older children. The credit would be based on overall household income.
As for permanent tax cuts, both parties are considering exempting income related to Social Security, although how expansive the break would be is a source of dispute.
Minnesota currently allows a subtraction of income that’s meant to shield low-to-middle-income retirees from much of the tax. The maximum subtraction is now $4,560 for single filers.
Completing doing away with the state tax would cost the treasury $1.2 billion in the next two years and rise into the future.
House Minority Leader Lisa Demuth, R-Cold Spring, said Minnesota’s big budget surplus makes a partial elimination of the tax unsatisfactory.
“Ending that tax on Social Security, giving that relief was something that both parties campaigned on,” Demuth said. “And that is something that could be a priority. We should have already gotten this done.”
Added Sen. Carla Nelson, R-Rochester: “If not now, when?”
Walz and leading Democrats say they favor exemptions as long as the break isn’t afforded to the wealthiest taxpayers. Some first-term DFL lawmakers have gotten behind a further-reaching repeal, however.
On Monday, Walz said Republicans had the chance to ditch the Social Security tax as part of a negotiated deal last year that failed to win final passage.
“Every single one of them walked away last May because they wanted a political message rather than that. So again, no crocodile tears from this,” Walz said. “That deal had a shelf life, they chose to roll the dice and they lost.”