ST. PAUL — A final tax deal taking shape at the Minnesota Capitol will include long-discussed rebate checks returning a portion of the state’s record $17.5 billion budget surplus, as well as a big cut to the Social Security income tax and more than $1 billion in child tax credits.
Under a $3 billion two-year tax plan finalized this week by a joint House-Senate committee, the state would issue more than $1.1 billion in checks to millions of tax filers. Individual filers would get $260, and married or joint filers would get $520. Anyone filing taxes would qualify for $260 for each dependent up to three.
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The income cutoff for checks is $75,000 for a single earner and $150,000 for joint filers. At a Thursday news conference, Democratic-Farmer-Labor House Speaker Melissa Hortman said their aim is to have checks go to people who were most hurt by economic trouble during the pandemic.
â€Many people fell far behind. Other people did quite well. A lot of people who were able to work from home actually saved money,†she said. “So the way we looked at returning the surplus in the form of rebates was that it should be means tested so that the people who need the money get it.â€
The checks in the House-Senate deal are significantly smaller than the original base of $1,000 for single filers and $2,000 for joint filers proposed by Gov. Tim Walz last year. It’s also less than the amounts initially passed in the Senate and House tax bills.
But the direct rebate is just one component of a tax bill lawmakers have been working on as the May 22 deadline to complete legislative business looms. DFL lawmakers say their tax package, which eliminates the Social Security income tax for 76% of recipients and provides $1.5 billion in child tax credits over the next four years is aimed at helping families and children who need it the most.
“We have an extraordinary opportunity here to focus on families and children across this wonderful state,†said Senate Taxes Committee Chair Ann Rest, DFL-New Hope, during a Wednesday conference committee hearing on the bill.
The tax bill creates $1 billion in new taxes, $2 billion in cuts and spends another $900 million or so on items like local government aid and property tax refunds.
Minority Republicans continue to rail against DFLers for increasing spending and introducing billions in new taxes at a time the state is flush with cash. They want to see the full repeal of the Social Security tax, ongoing tax relief and bigger rebate checks.
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“Minnesotans were expecting that to go back into their pockets,†said Senate Minority Leader Mark Johnson said of the historic surplus. “But we’re not seeing that, we're seeing that being spent on government.â€
GOP lawmakers say the tax bill and other DFL-backed programs will create about $10 billion in new taxes in the next four years. While DFL lawmakers dispute the GOP’s count, what’s certain is that between the tax bill and other legislation like a new paid family and medical leave program, Minnesota will see billions in new taxes. Lawmakers on a transportation conference committee are still working out the details of their bill, which includes new fees for vehicle registration and potentially a 75-cent tax on retail deliveries.
While both the DFL-controlled House and Senate passed their tax bills weeks ago, there were some differences between their proposals, some of which were dropped in the joint committee where members from both chambers worked to iron out the differences.
DFLers are moving forward with a plan that would eliminate the Social Security income tax for Joint filers earning up to $100,000. By making the cut, the state will forgo about $1 billion in revenue over the next four years.
The child tax credit would provide $1,750 per dependent and would start to phase out at $29,000 a year for single filers, at which point that amount would phase out. Couples earning up to $35,000 a year would be eligible for the full credit, which would completely phase out at $90,000.
Beyond the direct payments, child tax credits and social security tax cut, the tax bill also includes property tax relief, an expanded renters tax credit and $300 million in aid to local public safety agencies and $80 million in local government aid for the next two years. Tribal governments would get $35 million.
While a fifth new “millionaires†tax tier for the highest-earning Minnesotans did not make it into the tax deal, there are some new taxes included, including new taxes on dividends from investments.
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DFL lawmakers had also planned to create a new offshore income reporting requirement for corporations, something they said could bring in more than $1 billion over the next two years. Companies doing business in Minnesota would be subject to state tax on international income.
They ultimately dropped the proposal, though the bill does include a change allowing taxes on overseas business profits.
The conference committee of the Senate and House was expected to give final approval to the bill Thursday. Then it must receive a vote of the whole Senate and House before the governor can sign it into law.
Follow Alex Derosier on Twitter or email aderosier@forumcomm.com .
This story has been corrected to accurately state the cutoff point for the Social Security income tax exemption.
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