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What tax plans at the Minnesota Capitol mean for you

20 April 2022

Minnesotans hoping for financial relief amid rising food, gas and housing costs would see vastly different outcomes under three tax plans circulating at the State Capitol.

Republican lawmakers who control the Senate said a record-breaking estimated budget surplus means Minnesota is collecting too much from taxpayers. They are pushing for a large permanent income tax cut and end to Social Security income taxes.

“While we sit on $9.25 billion, far too many Minnesotans are struggling with the effects of skyrocketing inflation. Historic inflation, 40-year-high inflation. And particularly Minnesotans on fixed incomes,” Senate Tax Chair Carla Nelson, R-Rochester, said as the Senate recently passed its initial tax proposal, which would cost more than $8.4 billion over the next three years.

Democratic Gov. Tim Walz aims to send one-time tax rebate checks to most Minnesotans, and both the governor and the House DFL majority want to expand tax credits for families with children. The House is pressing for a variety of other targeted tax breaks, including increased aid for renters and people with student loan debt.

The House tax bill is roughly a third of the size of the Senate plan. DFL legislators instead want more spending on a variety of other areas including education, housing and pandemic frontline worker pay.

“Their approach is basically, give some tax relief to a lot of people whether or not you need it, like a millionaire,” House Tax Chair Paul Marquart, DFL-Dilworth, said of the Senate plan. “What we have done is said, ‘How can we really put targeted and significant tax cuts to folks that will really make a difference in their lives?'”

With the governor’s office and full House and Senate up for election in November, the final month of the legislative session will provide a stage for heated partisan clashes over taxes.

The Star Tribune examined what the three tax proposals at the Capitol would mean for eight Minnesota households, ranging from an older low-income couple receiving Social Security to a family of four earning twice the state’s median income.

House, Senate and Walz administration officials provided estimates for their plans’ impacts on various families, and noted that some of the numbers could fluctuate depending on the age of a family’s children, expenses or Social Security income. The examples are also missing some details as Senate Republicans intend to roll out a second tax bill with property tax changes and other credits in the next couple of weeks, and House Democrats’ numbers do not include property tax cuts they said would result from their local aid proposals.

Median income households

Single person earning $33,216, paying $690 in rent with $25,000 in student loans.

Walz: One-time $500 check

Senate GOP: $605 annual income tax cut

House DFL: $900 student loan credit increase, $147 annual renters’ credit increase

Married couple without children earning $104,489 and paying $1,105 in rent.

Walz: One-time $1,000 check

Senate GOP: $1,198 annual income tax cut

House DFL: No change

Family of four earning $115,351 with one child in day care and another in school, who own a $226,452 home.

Walz: One-time $1,000 check

Senate GOP: $1,032 annual income tax cut

House DFL: $3,000 child care credit, $650 child tax credit rebate

Senior couple with Social Security and other income totaling $83,958 who own a $227,459 home.

Walz: One-time $1,000 check

Senate GOP: $1,350 annual tax cut

House DFL: $1,307 annual Social Security benefit tax cut

Households with twice the median income

Family of four earning $230,702 with one child in day care and another in school, who own a $340,371 home.

Walz: One-time $1,000 check

Senate GOP: $1,228 annual income tax cut

House DFL: $1,200 child care credit

Senior couple with Social Security and other income totaling $167,916 who own a $333,317 home.

Walz: One-time $1,000 check

Senate GOP: $1,609 annual tax cut

House DFL: No change

Households at half the median income

Family of four earning $57,676 with one child in day care and another in school, paying $902 in rent.

Walz: One-time $1,000 check, $156 dependent care credit, $341 K-12 education credit

Senate GOP: $730 annual income tax cut

House DFL: $2,000 child care credit, $650 child tax credit rebate, $147 annual renters’ credit increase

Senior couple with Social Security and other income totaling $41,979 who pay $815 in rent.

Walz: One-time $1,000 check

Senate GOP: $278 annual tax cut

House DFL: $292 annual renters’ credit increase

Mark Haveman, executive director of the Minnesota Center for Fiscal Excellence which reviews tax policy, said if lawmakers are able to reach a tax deal this year it likely will be a scaled-down compromise.

“If I have to predict who is coming out looking pretty good here, I suspect seniors will do well,” he said, noting the Senate is attempting to end all taxes on Social Security income and the House has proposed a more modest Social Security tax cut, as well as a renters credit increase that would help older adults.

The Senate’s elimination of Social Security taxes would bring Minnesota in line with most other states and would largely benefit higher-income residents. Under existing tax exemptions more than half of Minnesota households receiving Social Security benefits already do not pay taxes on them, according to nonpartisan House researchers.

Walz and Haveman both warned against large ongoing tax cuts that would permanently remove a sizeable chunk of state income at an uncertain time.

“Even though things look very good right now, it’s prudent to be a little cautious and conservative because we’ve been on this merry-go-round before,” Haveman said. In the early 2000s the state had large surpluses and lawmakers passed significant tax relief and new spending, he said, and “we were quickly in a hole just a couple years later.”

Sources: Financial impact estimates provided by Minnesota Department of Revenue and House and Senate staff. Median income figures and housing costs based on the revenue department’s tax analysis released last year.

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