Minnesota House tax plan seeks billions in cuts, also increases
The tax discussion picking up steam in the Legislature is awash in numbers and rhetoric partisans love to bend to their advantage.
“With a historic budget surplus, we are bringing forward the largest tax cuts in state history,” House Speaker Melissa Hortman, DFL-Brooklyn Park, declared Monday as her caucus outlined its plan for a one-time rebate, expanded family credits, property tax aid and other cuts.
The bill also calls for a “millionaire tax” with a new fifth-tier tax rate and would draw more revenue from corporations with international operations.
Senate Minority Leader Mark Johnson, R-East Grand Forks, found the push for any tax increases flawed, pointing to fees and taxes scattered throughout bills that could win approval this year.
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“Minnesotans should know: The Democrats’ budget this year will lead to higher taxes now and even higher taxes into the future to support their aggressive government growth,” Johnson said at his own news conference Monday.
The competing assessments will be on repeat in the weeks ahead. And there’s truth in both: Some Minnesotans would pay more while others would see their tax burden drop under proposals the Legislature’s Democratic majorities are teeing up.
The Senate DFL has yet to release its tax proposal, but could do so this week.
The House DFL package would mean one-time rebates affecting 2.5 million people. Single filers who earned less than $75,000 in 2021 could claim a $275 refund; joint filers with twice that income could pull down $550. And there would be similar payments for up to three dependents.
House Taxes Chair Aisha Gomez, DFL-Minneapolis, said targeting and capping the rebates is key.
“We don't need to send a relatively small check to a relatively wealthy person that isn't going to be really felt in their personal economy,” she said. “I think that doing a refund like this is a good use of one-time money in a tax bill. And so we really focused on getting money into the pockets of the Minnesotans who need it the most.”
The rebate would amount to $1.25 billion. That’s far lower than what DFL Gov. Tim Walz proposed. Nonetheless, Walz said he is “super encouraged” to have the rebate concept in play after getting a lukewarm reception previously. He said it’s a good use of surplus dollars that aren’t due to show up in future calculations.
“We have this one-time pot of money,” Walz said. “If we create something new, there's going to be long-term costs. And you have to be very, very careful about that.”
Despite loud calls to eliminate Minnesota’s taxation of all Social Security benefits, the House bill doesn’t do that. Instead, it increases the income floor before tax applies.
Going forward, DFLers say a full Social Security exemption would apply to three-quarters of people with that income compared to about half now. Couples earning less than $100,000 annually could count on a full exclusion, as would single filers with annual income below $78,000.
House Research statistics indicate that 236,800 additional returns would no longer be subject to a Social Security tax. Another 42,800 would see a reduced tax.
Rep. David Lislegard, DFL-Aurora, had advocated for a complete repeal but said he’s pleased with this result.
“You know that you're going to hear that, ‘Hey, they didn't eliminate the tax on full elimination,’ Lislegard said. “Well, I tell you what, this bill is going to improve people's lives.”
The added exclusion is a notable jump up but not the full repeal that lawmakers like Sen. Carla Nelson have long sought.
“I'm hopeful that the Senate does the right thing – full exemption of Social Security taxation on that income,” Nelson, R-Rochester said. “But the challenge is the House.”
The larger window of tax-free benefits would cost the treasury about $200 million per year. A full repeal is triple that price tag.
By stopping where they did, House Democrats said they were able to boost property tax relief for senior citizens and others. Homeowners who have seen soaring market values drive up their tax bills would get help; so would more renters.
“We're actually going to help those who are struggling with their bills,” Gomez said. “So that was the tradeoff between doing a full Social Security exemption, and then investing in these other programs and these other Minnesotans who really need the help in this time.”
The DFL plan also puts money toward a new working family tax credit of up to $1,175 per child, although that is also subject to income eligibility limits. The credit could cost $700 million or more in the next budget.
Other parts of their bill would raise taxes.
Earnings above $600,000 for single filers or $1 million for joint filers would be subject to a rate of 10.85 percent. Corporations would have to pay on more income earned overseas. Combined, those two taxes would generate nearly $1 billion for the next budget.
Republicans are seizing on that.
“We have a $17.5 billion dollar surplus, actually $19 billion surplus except for the math change that was made by the majority, and yet the Democrats are still trying to raise taxes on Minnesotans,” Weber said, referring to a bill made law earlier that added an inflationary measure into budget projections.
Hortman noted that a majority of the surplus won’t carry forward into the future, making it hard for lawmakers to fund programs with certainty. She said there is still plenty of debate ahead over what taxes, fees and other revenue-raisers survive and in what form.
“The legislative process is, we start with a block of clay and we are sculpting,” she said. “And we are continuing that process of sculpting.”