Tax rebate checks, Social Security tax cut headed to Minnesota governor’s desk
Members of the Minnesota Senate on Sunday, May 21, passed a $3 billion bill containing what DFL lawmakers have described as historic tax relief.
ST. PAUL — A $3 billion tax bill backed by Democratic-Farmer-Labor lawmakers that cuts the Social Security income tax for many Minnesotans, provides new child tax credits and returns part of the surplus to taxpayers as a one-time check is on its way to becoming law.
Members of the Minnesota Senate on Sunday, May 21, passed a bill containing what DFL lawmakers have described as historic tax relief.
In the next two years, the tax bill creates $2 billion in cuts, $1 billion in new taxes, and $900 million or so on items like local government aid and property tax refunds. Backers say it will help reduce child poverty, possibly by one-third. In the next four years it would create $4 billion in tax relief and $2.2 billion in new taxes.
“The Senate tax bill prioritizes $4 billion in tax cuts for Minnesotans, putting money back in the pockets of families across the state. I’m especially pleased with how this bill help Minnesota’s children and their families, with the child tax credit cutting our child poverty rate by a third,” Senate Tax Chair Ann Rest, DFL-New Hope, said in a statement on the bill.
The final tax bill passed the Senate on a 34-33 party-line vote Sunday after passing in the House the night before on a 69-63 vote that was also along party lines. Minnesota will see billions in new taxes in addition to the cuts touted by DFLers, who hold full control of state government following the November elections.
Next, it heads to the desk of Gov. Tim Walz under a deal struck by Senate and House DFL lawmakers over the past few weeks. Each chamber had a slightly different approach to taxes and smoothed out the differences in a joint committee.
It includes $1.1 billion in one-time direct payments to more than 2.5 million Minnesota tax filers. Single filers earning up to $78,000 a year would get $260 checks. Joint filers earning up to $150,000 would get checks of $520. Households would get $260 for each dependent up to three, for a maximum total of $1,300.
Those checks are significantly smaller than the original base of $1,000 for single filers and $2,000 for joint filers proposed by Gov. Tim Walz last year. It’s also less than the amounts initially passed in the Senate and House tax bills.
GOP lawmakers say the tax bill and other DFL-backed programs will create about $10 billion in new taxes in the next four years. While DFL lawmakers dispute the GOP’s count, what’s certain is that between the tax bill and other legislation like a new paid family and medical leave program, Minnesota will see billions in new taxes in addition to the cuts touted by DFLers.
“We don’t need any tax increases, Minnesotans already sense they have chipped in enough to feed government,” said Jim Abeler, R-Anoka, who pointed out that the state has a historic $17.5 billion surplus.
Republicans support a complete repeal of the Social Security income tax, as did four newly elected DFL Senators, but ultimately the partial elimination was as far as tax committees were willing to go. DFLers were concerned about losing more revenue and said the state didn’t need to eliminate the tax for the highest earners.
Social Security income tax would be eliminated for about three-quarters of people who receive the benefit, Democrats said. The tax would be fully eliminated for single filers earning up to $78,000 and joint filers earning up to $100,000 a year. From that point it would completely phase out at $118,000 for single filers and $140,000 for joint filers.
It’ll cost the state about $1.2 billion over the next four years. It’ll affect more than 300,000 people receiving Social Security payments.
More than $1.5 billion in new child tax credits would offer $1,750 per child with no limit on the number of children. Joint filers up to $35,000 a year would get the full credit. Past those income levels, the credit would phase out at higher levels depending on the number of children.
For example, a couple with three children would start seeing the credit decrease at income levels above $35,000, and it would fully phase out at a combined income of $81,666.
Beyond the child tax credit, a K-12 education credit would offer $1,500 per child.
DFLers say the child tax credit will cut child poverty by one-third. Other items in the bill include $300 million in local public safety aid, hundreds of millions in property tax relief, and $80 million in local government aid for the next two years. Tribal governments would get $35 million.
Filers who apply for the renters tax credit will no longer have to apply later in the year for a refund and will instead get the credit when they do their taxes in April.
There’s also a provision allowing for the state of Minnesota to pay off U.S. Bank Stadium in Minneapolis 23 years early, something that would save the state about $220 million in interest payments.
Some of the new revenue-generating taxes in the new bill include a change to allow taxes on overseas business profits. By bringing Minnesota into conformity with a federal rule on taxing “global intangible low-taxed income, ” the state could see $437 million in additional revenue in the next two years.
Beyond the tax increases, Republicans also expressed concerns about changes to taxes on electronic pull tabs, which many charities get income from. A provision in the bill limits types of gameplay, something charities and GOP lawmakers say could hurt revenue.
The Minnesota Indian Gaming Association backed the change as the machines that run the electronic pulltabs are similar to casino gambling.
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