ST. PAUL – Minnesota House Speaker Kurt Daudt said last week that Republicans would consider tax exemptions for Social Security and veterans benefits as part of their plan to give back more than $900 million of the projected state budget surplus.
On Tuesday, lawmakers examined several plans – ranging in cost from $120 million to $290 million for the two-year budget cycle – to do just that.
House Taxes Committee chairman Greg Davids, R-Preston, said he has received more than $8 billion in tax-relief requests but that the Social Security and veterans exemptions have a good chance to survive.
“I think the committee will look on the bills we heard today very favorably,” he said.
Advocates for the bills argued they are needed to stop giving seniors and veterans reason to leave the state.
“Whether we like it or not, it’s happening,” Kathy Lohmer, R-Stillwater, sponsor of one of the Social Security bills, said of the exodus from Minnesota.
Barbara Linert of Eagan said she and her husband have children in lower-tax states and that their financial planner had recommended they relocate for tax reasons.
“Please give us an excuse to stay in Minnesota,” she said to committee members.
But Nan Madden, director of the Minnesota Budget Project, argued the proposals are too costly and won’t have a significant effect on senior migration.
Two of the bills heard Tuesday in the Taxes Committee are sponsored by Davids – one to phase in the exemption of Social Security benefits from income tax over 10 years, and one over eight years.
The committee considered those two plus three other Social Security bills for possible inclusion in the overall tax bill later in session. They range from five to 10 years for phase-in, with costs ranging from $81 million for 2016-17 to $250 million.
Costs for 2018-19 are estimated much higher, from $326 million to $463 million.
As for veterans, Rep. Bob Dettmer, R-Forest Lake, presented two bills. One would allow veterans to subtract a certain sum per year of military service (up to 20 years) from state taxable income, and the other would provide tax credits to employers who hire veterans.
Costs for 2016-17 for the two veterans bills were estimated at $40 million and $37 million, respectively.
Gov. Mark Dayton has not included the Social Security or veterans tax benefits in his proposed budget.
During a tele-town hall meeting last month with the AARP, Dayton said he would consider adjusting the income thresholds at which various levels of taxation kick in but that total Social Security exemption is too expensive.
“I don’t know where we take $500 million a year out of our budget without some severe impacts on people,” he said.
Currently, Minnesota conforms to federal treatment of Social Security benefits. Filers with provisional income less than $25,000 (or $32,000 for married couples filing jointly) are exempt from taxation. Those with income between $25,000 and $34,000 have up to 50 percent of benefits included in taxable income, and those above $34,000 have up to 85 percent included.
A significant number of seniors don’t pay taxes on their Social Security now, said Rep. Diane Loeffler, DFL-Minneapolis, so the bill primarily would help higher-income elderly citizens.
Rep. Pat Garofalo, R-Farmington, disagreed.
“We’re talking about very modest income levels here,” he said. “We’re encouraging them to leave our state.”
Senate Republicans in January proposed a 10-year phaseout of Social Security taxes. Attempts to reach Senate Taxes Chair Rod Skoe, DFL-Clearbrook, for his thoughts on the proposed tax relief Tuesday were not successful.
As for Davids, he said he is interested in including a range of tax-relief proposals in the omnibus tax bill beyond the Social Security and veterans measures, including Dayton’s proposal for increasing child-care tax credits.
“He wants $100 million. I don’t know if we’re going to do $100 million, but I’d like to see something in the tax bill for that,” Davids said. “Both parties have ideas of how to give some money back.”
The Pioneer Press is a media partner with Forum News Service.