With a $17.5 billion surplus, MN DFLers disagree on how to raise tax revenue

Christopher Magan, Pioneer Press
·4 min read
2

With rebates for taxpayers, credits for families and new revenues, there’s a lot of similarities in how Democrats in the House and Senate want to change the taxes Minnesotans pay, but there’s also some key differences.

The biggest discrepancies? The Senate proposal raises less new tax revenue than the House and it allows dozens of local communities to hike sales tax rates. The House version excludes those local sales tax request and adds in a new income tax tier.

The conflicting ideas are coming into focus after the House approved a mammoth tax bill last week and the Senate is poised to do so Tuesday. So far, the Democratic-Farmer-Labor Party, which controls both chambers of the Legislature with a narrow majority, has struggled to attract Republican support.

Democrats have pledged that about $3 billion in tax changes will be included in the next two-year budget. Their plans include rebates for taxpayers, expanded credits for lower-income residents and families and some help for homeowners and renters.

There’s also somewhat less enthusiastic support among DFLers for raising new tax revenues from corporations and wealthy residents. Democrats’ one-seat advantage in the Senate likely will make any tax increases a hard sell.

Republicans, now in the minority in both chambers, have expressed disappointment and frustration with Democrats’ tax plans. They say with a $17.5 billion budget surplus much more should be returned to taxpayers through rebates and permanent rate cuts.

GOP leaders also have rejected the idea that Minnesota needs to raise new tax revenue. But Republicans have suggested they could support some DFL tax cuts if they are more generous.

Differences in the House and Senate tax bills will have to be worked out before the Legislature can send them to Gov. Tim Walz.

Raising revenue?

House Democrats have proposed creating a fifth tax tier on individual incomes above $600,000 and households earning more than $1 million a year. That could bring in about $500 million in the next biennial budget or roughly $250 million a year.

The Senate doesn’t include new income taxes for individuals, but both chambers want to raise new money by taxing corporations’ overseas profits, raising about $430 million in the next budget and about $350 million annually in the future. They do it by creating “worldwide combined reporting” requiring businesses to pay tax on some international earnings.

Republicans have criticized that idea, noting Minnesota would be the only state to require the tax, and saying it would drive businesses from the state.

Another important difference between the House and Senate bills is how it treats requests by communities to raise sales taxes to fund local projects. The Senate bill allows more than 30 cities and counties to hike sales taxes for various projects.

None of those proposals are in the House bill. Local tax changes need to be OK’d by the Legislature before a community can move forward.

St. Paul has asked lawmakers to approve a 1 percent increase in sales taxes to fund transportation and other infrastructure. Roseville, Woodbury, Stillwater and other east metro communities also are included in the Senate bill.

Similar rebates, deductions and credits

Both bills have more than $1 billion for rebates back to taxpayers in the form of rebates worth about $275 for most taxpayers as well as extra for up to three dependents.

Both versions cut taxes on Social Security benefits so roughly 75 percent of recipients would pay no state taxes on benefits. Individuals earning up to $78,000 and households with $100,000 or less would be exempt.

The bills also have a number of new and expanded deductions and credits for lower- and middle-income Minnesotans, especially those with children. There’s more than $1 billion spent on different tax breaks that will have to be ironed out by lawmakers.

What’s next?

The Senate is expected to vote on the tax bill Tuesday. If it is approved, a joint committee of House and Senate members will work to find agreement on the differences.

It is important to also note both chambers are considering other bills that could impact tax rates.

There’s DFL support to create a universal paid leave program that could cost $1.2 billion a year through a new 0.7 percent payroll tax that could be split with employees. There’s also proposals to raise sales taxes in the Twin Cities metro to fund things like housing and transportation.

Related Articles