ST. PAUL — A tax proposal from the Democratic-Farmer-Labor majority in the Minnesota Senate calls for a partial elimination of the Social Security income tax and direct payments to taxpayers.
The tax bill heard Wednesday, April 26, in the Senate Taxes Committee has a lot in common with the House tax plan but differs in a few ways, such as the approach to child tax credits. It also 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.
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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.
The House tax plan is set for a vote later this week and the Senate will follow.
DFL senators say their tax plan, which includes no new income or sales taxes, would bring $4 billion in tax cuts and credits to Minnesotans who need them the most, but Republicans have said the state should do more to cut taxes, especially with a historic $17.5 billion surplus.
“Minnesotans have told us time and again that they want us to address rising costs and help those who are struggling,†Senate Taxes Committee Vice Chair Matt Klein, DFL-Mendota Heights, said in a statement. “By putting money back in the pockets of families across the state we are doing just that with this tax bill.â€
The deadline for lawmakers to finish their business is May 22.
Direct payments
Much like the House plan, the Senate plan would return $1.1 billion of the record $17.5 billion surplus as a tax rebate. Checks would start at $279 — slightly more than the $275 checks in the House proposal. Both are significantly lower than the $1,000 starting point proposed by DFL Gov. Tim Walz.
In the Senate tax plan, 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 everyone else.
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Child tax credits
A big part of that would be delivered through $1.3 billion in child tax credits. Minnesota families could qualify for $620 per child or disabled dependent up to a total of three. It would apply for families making up to $80,000 a year.
Another component is $907 million toward a child care tax credit, which would allow Minnesotans earning up to $160,000 to qualify for up to $12,500. Families with children up to age 5 would get a bigger credit to help cover the costs of child care.
The Senate’s approach is slightly different from the House DFL’s “child and working family tax credit,†which would provide up to $1,175 per child for low-income households.
DFLers say expanded credits will reduce child poverty in Minnesota by 25%. Walz and DFL legislative leaders have said their central priority for the 2023 legislative session was boosting programs that help families and children. They’ve agreed on a general framework but have slightly different proposals that will need to get worked out in the coming weeks.
Social Security
Under the Senate plan, married and joint filers earning up to $100,000 a year would pay no tax on Social Security. Single filers would be cut off at $78,000. From those income levels, the exemption would start to phase out. That's the same framework outlined by House Democrats.
Senate DFLers say 76% of Minnesota seniors won't pay taxes on Social Security under the plan. The new exemptions would cost the state about $1 billion over the next four years.
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Republicans in the minority in both the Senate and House don’t have much sway over the tax bills, but some DFL senators say they share Republicans’ goal of a complete repeal of the state income tax on Social Security. Minnesota is just one of 11 states that have the tax.
But Senate and House Democrats in their tax plans are backing a partial roll-back of the Social Security income tax rather than a full repeal. Leaders argue top earners don’t need the tax cut, and the state would lose more than $600 million a year in revenue if lawmakers eliminated the tax altogether.
Sen. Grant Hauschild, DFL-Hermantown, one of the Senate DFLers who campaigned on the full repeal of the Social Security tax, said he was pleased with the tax bill as it would mean 76% of Minnesota seniors would no longer pay. He also noted the inclusion of $325 million in public safety funding, most of which would go to local law enforcement agencies.
“As a new member of the Taxes Committee, I prioritized the Social Security tax elimination for our seniors, the child tax credit for our working families, and funding for our public safety officials and police,†he said in a statement on the bill. “All of those items are funded at historic levels in this bill.â€
GOP stance
Senate Taxes Committee Republican lead Bill Weber, R-Luverne, called the tax package a disappointment, and asked why his DFL colleagues weren’t willing to pursue bigger tax cuts with a historic surplus.
“Our surplus was built largely on income taxpayers, but they are receiving very little recognition or tax benefit from Democrats,†Weber said in a statement. “With an $18 billion surplus, you would think Democrats could find more than a paltry $3 billion in tax cuts for limited populations, but the spending spree at the Capitol will prevent broad tax relief for most Minnesotans.â€
The tax bills do not contain all the new taxes proposed by Democrats. Other packages carry new fees, such as a new 75-cent delivery fee for things like food delivery and Amazon shipments. Multiple bills will form the overall budget, which under the current DFL framework, would add nearly $18 billion on top of the current more than $50 billion two-year budget.
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GOP senators also point to nearly $10 billion in new taxes in DFL-backed bills moving through committees, including more than $1 billion in new payroll taxes for a paid family and medical leave program.
Follow Alex Derosier on Twitter or email aderosier@forumcomm.com .
This story was edited at 7:44 p.m. on April 26 to correct that 76% of seniors' Social Security would not be taxed under the proposal. It was originally posted at 5:44 p.m. The News Tribune regrets the error.
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