ST. PAUL — Members of the Minnesota Senate on Tuesday, May 2, gave the go-ahead for a partial elimination of the Social Security income tax, refunds to taxpayers, and child tax credits, but more work remains before those polices go into effect.
A tax package backed by the Democratic-Farmer-Labor majority in the Minnesota Senate would return $1.1 billion of the record $17.5 billion surplus as a tax rebate. Senate Taxes Committee Chair Ann Rest, DFL-New Hope, said the bill provides a record amount of tax cuts and credits.
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“The Senate tax bill provides $4 billion in tax relief, the largest tax cut in state history,†she told fellow senators as the chamber took up the bill Tuesday.
Republicans have argued the state should provide broader tax cuts, including a complete repeal of the Social Security tax, but DFLers say their tax plan will deliver relief to those who need it most — seniors and families of lower to middle income.
After several hours of debate, the Senate passed the bill 34-33 on party lines. But now it'll have to get reconciled with a House version that passed last week before it can go to the governor's desk.
What's in the bill?
Direct payment checks would start at $279 — significantly lower than the $1,000 starting point proposed by DFL Gov. Tim Walz. Joint filers would qualify for $558 checks, and all filers would qualify for $56 per dependent up to three. Cutoffs for the checks would be $75,000 for single filers and $150,000 for joint filers and heads of household.
Besides the rebate checks, cuts would come in the form of $1.3 billion in child tax credits and $907 million toward child care tax credits. Those have income phaseouts and are aimed at helping families of low-to-middle income, DFLers said, and differences with the House version will have to get sorted out in committee.
The same goes for the Social Security tax cut, where married and joint filers earning up to $100,000 a year and single filers earning up to $78,000 would pay no taxes on that income. About 70% of recipients would be eligible, and the state would sacrifice about $1 billion of revenue over the next four years.
DFLers hold a 34-33 majority over Republicans in the Senate, though some of the DFL members campaigned on a full repeal of the Social Security tax. But so far, they have supported their party's tax bills.
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Both the Senate and House DFL tax plans include a new offshore income reporting requirement for corporations, something lawmakers say 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.
But there are some differences between the proposals. The Senate plan doesn’t include the new fifth-tier tax bracket for top earners in Minnesota. A “millionaires tax†in the House plan calls for a new 10.85% tax on the top 0.8% of Minnesota earners. Local sales tax authorizations are in the Senate bill but not the House bill.
The Senate bill also includes $325 million in public safety funding, most of which would go to local law enforcement agencies.
Senate Republican response
Minority Senate Republicans questioned DFLers’ characterization of the tax bill as historic tax relief, as other DFL-backed bills contain new tax hikes and fees, including a 75-cent delivery fee, Twin Cities metro sales taxes and more than a billion in new taxes for paid family and medical leave.
DFL lawmakers and the governor plan to increase government spending to about $70 billion in the next two years — a significant increase over the previous more than $50 billion two-year budget. They say it will help make Minnesota a better place for people to work and raise families, but Republicans oppose the spending increases.
“You know our position: We don’t really need to raise taxes when we have a 17-and-a-half-billion-dollar surplus,†said Senate Taxes Committee Minority Lead Bill Weber, R-Luverne. “The reality is that most of the tax increases we’re seeing this year aren't included in this bill, they’re included in many other bills to the tune of about $10 billion.â€
Weber said there are some things he and his GOP Senate colleagues like about the DFL tax plan, including relief for families and parents with children. But he said the income cutoff levels should be higher.
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Legislative Republicans also still want a full repeal of the Social Security income tax, and on Tuesday proposed a new way to tackle the issue: Rather than repeal that tax in the coming year, the state could do so in 2028. As part of that deal, they’d deliver the three-fifths supermajority needed to pass the $1.5 billion infrastructure borrowing bill that failed earlier this year.
GOP senators shot down that proposal in March as they tried to pressure DFL colleagues into supporting their favored tax cuts.
The new offer from Republicans also includes a request for the Senate not to pass a new paid family and medical leave program and instead authorize a private option. Paid leave is expected to raise payroll taxes by $1.5 billion each year and passed in the Minnesota House Tuesday night.
DFL Senate leaders did not signal any interest in the Republican offer, which also includes a request to remove the offshore reporting requirement.
Follow Alex Derosier on Twitter or email aderosier@forumcomm.com .
This story was updated at 9:14 p.m. on May 2 with results of the Senate vote. It was originally posted at 6:25 p.m.
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