The Republican House announced their tax plan over the weekend. The bill calls for giving back the projected $1.9 Billion state surplus—and then some– in the form of tax credits. Rather then cut marginal rates, the plan seeks to target assistance to various Minnesotans.
Some of the proposals expand existing credits, while others are new, including the proposal to provide a $1,000 tax exemption to most Minnesota tax filers. High-income Minnesotans, who got hit with a 9.85% tax rate in 2013 by Governor Mark Dayton and the DFL-controlled legislature, will not benefit from the $1,000 exemption as there is a phase out that begins at $258,250 for single filers and $309,900 for married filers.
The House GOP plan will offer $2 Billion+ in tax credits to Minnesotans including:
- Seniors on social security
- Individuals paying off student loans
- Parents paying for private school K-12 tuition (household incomes up to $56,500 for two children attending school)
- Families paying for daycare or preschool expenses
- Parents saving for college in 529 plains (50% contribution credit for household income up to $80,000, 5% contribution credit for household income up to $160,000)
- Teachers attaining a master’s degree
- Military veterans’ retirement pay
- Medical professionals who provide charity care for those who don’t have insurance
- Individuals paying for long-term care for the sick, elderly, or disabled
- Individuals purchasing long-term care insurance policies
- Individuals paying for MnSure premiums
- Estates paying the so-called “death-tax” by raising the exemption from $2,000,000 to the federal amount (currently at $5,400,000) by 2019
- Companies who provide fitness club memberships to their employees
In addition, the Republican plan increases the Angel investment tax credit for small businesses, provides refunds to certain technology and biotechnology corporations, and provides property tax relief for commercial property owners, farmers, and seasonal cabin owners by phasing out the state general tax levy over six years.
The $1,000 tax exemption for most Minnesota income tax filers will likely continue to shift the income tax burden to higher income Minnesotans. According to the latest Minnesota tax incidence study, 30% of Minnesotans will have zero or net negative state income tax liability by 2017. Exempting more income from taxation results in larger tax rebates, even for those who don’t pay income taxes. Democrats argue that low-income Minnesotans pay a higher percentage of their income in other taxes like sales and property taxes. However, the oft-cited tax incidence study doesn’t account for wealth transfers that occur in the form of non-cash benefits from the government since an individual isn’t required to claim things like food stamps, energy cash assistance, childcare assistance payments, or Medicaid.
While the GOP plan seeks to spread out the surplus to a variety of constituencies, Governor Dayton’s plan is focused on childcare and welfare.
Governor Mark Dayton is calling for the surplus to pay for the following:
- PreK for all Minnesota 4-year-olds under the K-12 Budget
- Tax credits to cover daycare for all Minnesota children (credit up to $2,100 per year)
- $695 Million K-12 education spending increase, (K-12 spending has increased by $895 Million over the last 4 years)
- Free breakfast for all Prek-3rd grade students
- $288 Million spending increase at state colleges and universities
- $1,200 per year increase in cash assistance to families on welfare (Minnesota Family Investment Program)
- $769 tax credit via the Working Family Tax Credit which goes to Minnesota families who also qualify for the federal Earned Income Tax Credit (household income up to $52,427 in 2014)
Currently part-time residents and non-residents are eligible for the Working Family Tax Credit, the House GOP tax plan would eliminate that loophole. Minnesota is one of 26 states who offer the Earned Income Tax Credit via the Working Family Tax Credit and already provides one of the most generous credits in the nation. Dayton & the DFL-controlled legislature previously increased the credit by 25% in 2013. While the Governor may agree to some form of tax rebates, it’s likely they’ll be distributed to lower income Minnesotans.
Senate Democrats have proposed an overall budget plan, but the Senate Tax Committee has not yet provided details of their $200 Million tax credit package. Their proposal is 1/10th of what the Republican House seeks to return to Minnesota taxpayers which could make for a dramatic negotiation process in the coming weeks.