ST. PAUL — Minnesota’s middle-income earners would see income tax reductions under a Republican plan that will compete in the coming days with Democratic measures that call for tax increases to pay for schools.
Senate Republicans on Wednesday, April 24, released a tax plan that includes a drop from 7.05% to 6.8% in the second-tier income tax bracket for 2019 and a lower rate down the road. Senate leaders said the tax cut, mixed with provisions including farm-related deductions and an expanded K-12 tax credit, would mean Minnesotans would see either no change or a decrease to their taxes.
“In this case, 100 percent of Minnesota taxpayers are going to be protected,” said Senate Tax Committee Chairman Roger Chamberlain, R-Lino Lakes.
Chamberlain said there would be $800 million worth of direct and indirect tax relief, about $350 million of which involves the income tax cut. The new money comes largely from changes to what individuals and businesses can deduct from their tax bill, mirroring the federal legislation that focused on lowering overall tax rates.
“I was a bit surprised that it added up that much, but that’s where it comes from,” he said.
The Republican bill now joins House Democrats’ $1.2 billion tax proposal and Gov. Tim Walz’s tax plan, both of which call for tax hikes.
Those differences must be ironed out among lawmakers in these final weeks of the session. Chamberlain painted a stark picture of the differences between the House and Senate versions.
“I cannot express how destructive those proposals are going to be,” he said what House Democrats propose. “To raise taxes in this state, which is already high-taxed, is nothing more than a wet blanket and say, ‘Get out of town.’”
House Taxes Committee Chairman Paul Marquart said he wasn’t discouraged by the wide gulf between tax proposals. The Dilworth Democrat called the Republican plan “a starting point for negotiations.”
“I like our approach much better,” he said.
Marquart said that while the House bill raises taxes — including imposing an income tax on foreign profits of Minnesota corporations — it is more forward-looking.
“Our bill allows for important investments in the future,” he said.
One thing in common between Democratic and Republican proposals is tax conformity.
Marquart said that gave him optimism for compromise.
“That’s crucial — we all agreed on tax conformity,” he said.
The GOP bill does not add new state funding to local governments, unlike the House plan. Chamberlain said tax relief through conformity took priority.
“We wanted to keep the money within that system for rates and for businesses and individuals and communities,” he said.
Ron Johnson, a Bemidji City Council member and president of the Coalition of Greater Minnesota Cities, bemoaned the Senate’s aid plan for local governments.
“Without an LGA increase, cities will fall further behind and continue to struggle to provide essential services that our residents and businesses rely on,” he said. “The Senate position will undoubtedly lead to property tax increases and potential cuts to vital city services.”
Other provisions of the GOP bill include expanding the K-12 tax credit to preschool expenses and allowing businesses and farmers to deduct equipment purchases.
The bill also includes deductions for the Opportunity for All Kids scholarship program, which allows the parents of poor students to deduct up to $21,000 for education costs at a private school. Corporations that provide scholarships through the program can deduct up to $105,000 annually under the GOP proposal.
Senate Majority Leader Paul Gazelka, R-Nisswa, said the provision is aimed at helping inner city students escape failing schools, but Chamberlain said the scholarships “will not end public schools.”
“What we have been doing hasn’t been working, so let’s try something different,” Gazelka said.
The majority leader said he expects the Senate to consider the tax bill next week.
St. Paul Pioneer Press reporter Christopher Magan contributed to this report. The Pioneer Press is a Forum News Service Media partner