BLOG: Two Lakeville legislators propose a simpler plan for tax relief

Rep Jon Koznick, R-Lakeville MN House

The widely-advertised GOP House tax plan promises to “give it back” to 2 million Minnesotans in the form of a variety of targeted tax credits based on government-program enrollment, income, daycare need, and occupation.  But two state legislators are offering a simpler plan.

Senate file 2069, and House file 2199 are three pages long and seek to cut Minnesota income tax rates by a half a percentage point for all 2.25 million Minnesota filers.  Chief sponsors are Rep Jon Koznick, R-Lakeville, and Sen Dave Thompson, R-Lakeville.  The plan would cut the tax burden by $1.1 billion in 2016-2017 and $1.8 billion in 2018-2019.

Minnesota currently has a four-tier income tax, with the fourth tier established in 2013 under DFL control of the House, Senate & Governorship

5.35% up to $25,070 single-filer, $36,650 married

7.05% up to $82,360 single-filer, $145,620 married

7.85% up to $154,950 single-filer, $258,260 married

9.85% over $154,950 single-filer, $258,260 married

Over 750,000 Minnesotan households with income under $24,767 have less than a 0.1% state income tax liability, with the majority getting rebates, per the latest Minnesota tax incidence study.  This is due to the types of income-based-tax credits and personal exemptions that the Republican House seeks to expand.  For example, Minnesota already has a $4,000 personal exemption for single-filers, $8,000 for married filers, plus $4,000 for dependents, and there is a phase-out at higher income levels. The GOP House leadership plan would increase that exemption by $1,000 per filer for a temporary two-year-period, also with a phase-out at higher-income levels.

Minnesota has a highly complicated income tax and proponents like to tout its progressive structure.  Interestingly, the 1st tier 5.35% rate for lower-income Minnesotans is the 2nd highest in the nation after North Carolina at 5.75%, but North Carolina’s rate is flat across all income levels with no personal exemptions.

The  second-tier 7.05% rate is higher than the top rate in all but eleven states, (ID 7.4%, WI-7.65%, ME 7.95%, NY 8.82%, VT- 8.95%, DC-8.95%, NJ-8.97%, IA-8.98%, OR 9.9%, HI, 12% , CA-12.3%)  The 7.85% third-tier rate is higher than the top rate in all but nine states.

The 9.85% fourth-tier rate is higher than all but three states and it’s important to note that Oregon allows for a deduction of federal taxes paid, so the effective top tax rate actually lower than Minnesota’s.

The Koznick-Thompson plan to cut rates by 0.5% retains the progressive tax structure with the first tier seeing the greatest savings of 9.3% and the fourth tier receiving a 5.1% cut.  But the plan’s simplicity would certainly save Minnesota filers and the Department of Revenue time during tax season and immediately put money in pockets by allowing taxpayers to reduce their withholding knowing a lower rate is on the way.

Senate sponsors of the rate cut plan include; Sen Paul Gazelka, R-Nisswa, Sen Bill Weber, R-Luverne, Sen David Senjem, R-Rochester, and Sen Carla Nelson, R-Rochester

House sponsors include; Rep Bob Barrett, R-Lindstrom, Rep Jason Rarick, R-Pine City, Rep Steve Drazkowski, R-Mazeppa, Rep Peggy Scott, R-Andover, Rep Matt Dean, R-Dellwood, Rep McDonald, R-Delano, Rep Eric Lucero, R-Dayton, Rep Dennis Smith, R-Maple Grove, Rep Jerry Hertaus, R- Greenfield, Rep Anderson, R-Starbuck, and Rep Sondra Erickson, R-Princeton.

Although the House bill hasn’t had a hearing, it could feasibly be brought as an amendment when the larger omnibus tax bill hits the House floor, though it’s unlikely GOP House Tax Chair Greg Davids would embrace the plan when his chips are behind his own tax-credit-bonanza bill.