Minnesota Legislature closes in on deal on rebates, Social Security tax break

Published 4:13 pm Wednesday, April 26, 2023

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By Brian Bakst and Dana Ferguson

A tax plan put in the mix by Senate DFLers would provide one-time rebate checks, child tax credits and a reduction — but not elimination — of the tax on Social Security income.

The proposal outlined Wednesday to the Senate Tax Committee has some overlapping features as well as key differences from a House plan due for a vote Thursday.

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Under the Senate bill, there would be $4 billion in tax credits and other cuts over the next four years. Its DFL authors called it the biggest tax cut in state history. Unlike a plan advancing in the House, it would not raise any income taxes for Minnesotans.

But it would include a tax on earnings that multinational corporations make overseas. It’s estimated that that could bring in $1.2 billion through 2027, although the mechanism could face legal challenges or be difficult to enforce.

The Senate bill is on course for a vote Monday. The DFL-led House must go first and will debate its plan this Thursday. In the next few weeks, negotiators will iron out differences between the measures to reach a compromise plan.

“I look at this bill and these numbers and I look at every single family in my neighborhood and every single one of them benefits from this bill,” Senate Tax Chair Ann Rest, DFL-New Hope, said. “And I think that’s something that I’m going to be certainly proud of.”

House Tax Chair Aisha Gomez, DFL-Minneapolis, said the early agreement on some key planks is encouraging.

“We’re not going to spend a lot of time arguing about things when our values align,” she said.

Here are some of the largest pieces of the Senate bill:

  • Minnesotans who made up to $75,000 in 2021 would be eligible for a one-time $279 tax credit. And couples who earned up to $150,000 could see a $558 rebate, plus taxpayers with dependents could receive an extra $56 per child for a maximum of three children. The checks would cost the state about $1.1 billion. The House proposed the same income guidelines with slightly different rebate rates.
  • Families making $80,000 or less would also be eligible for a new child tax credit. They could see a credit of $620 per child for up to three children under age 18 or dependents with disabilities. The provision would cost about $1.1 billion over four years.
  • Couples who earn up to $200,000 could also benefit from a tax credit to offset child care costs, with the largest credits going to those with children younger than six. Credits would step down for those with incomes between $160,000 and $200,000.
  • Social Security recipients who earn $78,000 annually, or up to $100,000 as a couple, would not have to pay income taxes on their benefits. An estimated 76 percent of Minnesotans on Social Security would benefit from the proposal. That plan matches up with a House tax proposal.
  • Seniors who receive public pensions rather than Social Security would be able to subtract up to $25,000 if they make less than $120,000 annually.
  • Homeowners, farmers and small resort owners could receive up to $2,000 in tax refunds if they experienced property tax increases more than 10 percent and $100 in a year.

The bill stops short of the full repeal of Social Security income that many Republicans and some Democrats campaigned on, including DFL freshman Senator Grant Hauschild of Hermantown.

“You know I came in here as a new senator with sort of wide eyes, and big priorities and those big priorities cost a lot of money you learn very quickly,” he said, mentioning Social Security, child care affordability and public safety funding. “All of those things are some of the most costly items before us in the state Senate this year and all of them are included in this bill at enormous levels, historic levels.”

Aric Putnam of St. Cloud is another DFL senator who had advocated for a full elimination of the tax.

“With this proposal – though it’s not the dream – we are helping out 78 percent of Minnesotans and we’re reserving our capacity to help those in the greatest need,” he said.

He was referring to the estimates that the expanded tax subtraction would put about three-quarters of people with Social Security income in the clear. Current law spares about half from taxes.

Republicans on Wednesday pressed Democrats to fully eliminate the tax on Social Security and said they would be willing to vote for a $1.9 billion capital investment package if Democrats adopt the tax piece.

“We’re concerned with the lack of total elimination of Minnesota tax on Social Security because, at the end of the day, many people who have contributed greatly to our economy are not going to receive any tax benefit outside of the one time tax rebate,” Sen. Bill Weber, R-Luverne, said. “With a $17.5 billion surplus the amount of tax relief going to the people of Minnesota is abysmal, in my opinion.”

Senate Republicans earlier this year blocked an effort to pass the capital investment package, saying they wanted to see tax relief before they would get on board. The House approved a bonding bill with bipartisan support.

Rest defended the tax package and said that Democrats in the House and Senate are in alignment on the plan.

“It’s not just about Social Security, although we respect all the work and effort that older Minnesotans have gone through that are receiving Social Security. But we also are spending $1 billion on each of a number of categories,” Rest said, listing the rebate credits and child care credits as examples.

Putnam said that fully eliminating the Social Security tax this year could also prevent lawmakers from spending surplus dollars elsewhere. And he conceded that, while not perfect, the tax bill could help many Minnesotans.

“Were you to spend these resources in this way, we are neglecting or sacrificing our opportunity to invest in those seniors in the greatest need in their nursing homes, and the other support that our aging population needs,” Putnam said. “So with this proposal, though it’s not the dream, we are helping out 70 percent of Minnesotans, and we’re reserving our capacity to help those in the greatest need.”

Even if lawmakers had more money, Gomez, the House tax chair, said she wouldn’t go further on Social Security.

“The opportunity cost of doing the full exemption would be not helping low income seniors who are struggling with their property tax bills, not adding seniors to the working family credit, which they’ve previously been excluded from,” Gomez said.

Another area where the two bills are close is the one-time rebate. Joint filers making less than $150,000 could expect about $550 while singles of half the income would get a rebate of about $275. The bills differ on how much is added on for dependents.

Both are a fraction of what Gov. Tim Walz proposed, but Revenue Commissioner Paul Marquart says he’s pleased at least something is included.

“The governor has talked for a long time about easing the pain of inflation and this will help do that will provide dollars for groceries for rent for childcare school supplies,” he said.

Plenty of disputes are left to be settled.

The Senate plan includes $325 million in local public safety grants that aren’t in the House version.

Senators would authorize dozens of local sales taxes for community projects, which aren’t given the go-ahead in the House.

The House bill has a new 5th tier bracket sponsors are calling a millionaires tax. It’s not part of the Senate bill.

Rest said it’s a nonstarter.

“We are on purpose do not have any tax increases, new tax increases on individual Minnesotans,” she said. “That’s not what this bill is about.”