Minnesotans could see one-time checks of $275 per person, tax credits for families and Social Security tax cuts under a proposal House Democrats unveiled Monday.
But higher earners wouldn't see many of the benefits in the bill, and those with the biggest incomes would face a tax hike. The proposal is one of many tax plans state leaders are rolling out, and the House bill must be negotiated with the Senate and Gov. Tim Walz.
"The cuts in this bill are targeted to those who need it most, including seniors living on fixed incomes, families and children living in poverty, and Minnesotans across the state who are facing high property tax bills," said Tax Committee Chair Aisha Gomez, as Democrats unveiled their $3 billion plan one day ahead of the deadline for Minnesotans to file their income tax returns this year.
The House estimates that more than 2.5 million Minnesota households would get a one-time rebate under the bill. Married joint filers would get a one-time refundable tax credit of $550 if their adjusted gross income was $150,000 or less in tax year 2021 and single filers would receive $275 if they made $75,000 or less. There would also be a credit of $275 per dependent, for up to three dependents.
Earlier this year, the governor proposed far larger checks — $2,000 for married couples and $1,000 for individuals — with similar income parameters.
Republicans condemned the increases on high earners, and business groups are pushing back on a new proposal to require multinational corporations to report profits from subsidiaries. The proposals come as the state has a projected $17.5 billion surplus.
"Minnesota already has among the highest tax rates in the nation for personal income, corporate income, business property, and sales taxes," Minnesota Business Partnership Executive Director Charlie Weaver said in a statement. "The House tax bill would further isolate Minnesota as a tax outlier and put homegrown businesses at a competitive disadvantage."
Much of the state's budget surplus is one-time money and additional dollars are critical to ensure Minnesota has the resources needed long-term, Rep. Kaohly Vang Her, DFL-St. Paul, said last week.
She's the sponsor of a new fifth-tier income tax of 10.85% included in the broader bill. Minnesota's top tax rate now is 9.85%. The new rate would apply to single filers earning more than $600,000 and married joint filers with income over $1 million.
The change would affect about 24,200 state tax returns — about 0.8% of the total — with an average tax increase of $9,231, according to a Minnesota Department of Revenue analysis.
Her said she is unsure about the fifth tier's fate this session, particularly in the Senate where Democrats hold a one-seat margin.
"It's not just Republicans who care about not raising taxes. We all do. We all want to balance that in the best way possible and continue to have Minnesota grow," Her said. "And when you have a smaller margin … it's going to be a little bit tougher."
Social Security tax cuts have been a major sticking point among Democrats, who control state government. Some DFL legislators support eliminating state taxes on Social Security benefits, while Walz and the House leadership want a more limited approach.
Under the House bill, a single tax filer with an adjusted gross income of $78,000 or less or married joint filers earning no more than $100,000 could exempt all of their Social Security income from state taxes. The subtraction would be phased out, so those with incomes above the thresholds could qualify for a partial break. House Democrats said their plan would exempt 76% of Minnesotans receiving Social Security benefits from taxes on that income.
While the Senate hasn't released its tax bill, more than a half-dozen DFL senators have signed on to bills that fully eliminate state Social Security taxes. That provision was part of a tax deal between both parties last spring that fell apart, along with other spending plans, in the final hours of that session.
"We are one of only 11 states that continue that form of double taxation," said Sen. Carla Nelson, R-Rochester. "We are not going to let this go, folks. We need to make sure that those who campaigned on those promises are true to their word."
Support for families with children has been a central piece of Democrats' plans this session. The House bill restructures the state's working family credit to allow low-income families to get up to $1,175 per child. The credit would start phasing out at roughly $35,000 in income for married joint filers. Democrats said that change could help reduce childhood poverty in Minnesota by nearly 25 percent.
Their bill would also expand the state's K-12 education credit to $1,500 per child for classroom-related expenses, and those with student loans could also see a boost. The bill would make the student loan credit refundable and increase the maximum credit from $500 to $1,000.
The House tax bill would boost both Local Government Aid and County Program Aid by $100 million annually. And it establishes new state aid for tribal nations. The state would give out $75 million in 2024 with distribution based on the number of enrolled members in a tribal nation.
The bill does not include local-option sales tax requests from more than two dozen communities across the state. Gomez said she's concerned about fairness when local governments put those requests to voters, as some communities with larger retailers are able to collect more money. Her proposal creates a task force to further look into local tax streams.
Renters and homeowners would also see some long-term tax breaks as well as one-time increases in their refunds. The House bill would make several changes to the renters' credit, estimated to result in nearly $379 million in total tax relief over the next two years.
"We're going to provide mortgage-based state aid to communities so that they can meet the needs of their people," Gomez said. "There's a need to take a kind of step back and look at the whole system, and so that's what we attempt to do."
Senate Democrats and Walz didn't comment on the specifics of the House tax plan on Monday, but the governor said its early release is a "great sign" that there will be plenty of time to negotiate a final bill before the session's May 22 deadline to adjourn.
Staff writer Rochelle Olson contributed to this report.