The 2018 legislative session started on February 20th and below are top issues for NFIB during this short session.
Tax Conformity with the New Federal Tax Law
Our top three or four issues are all wrapped up in the critical tax conformity bill that will hopefully pass in 2018. The big wildcard, as usual, is Governor Dayton. Will he realize the importance of conformity and the significant benefit to Minnesota small businesses or will he stand firm in opposition which could cause a real problem for Minnesota tax filers in 2019?
The majority caucuses led by House Tax Chair Greg Davids (Preston) and Senator Roger Chamberlain (Lino Lakes) have stated a desire to conform in a significant way that could be especially beneficial to small business, but the issue has enormous complications. A few weeks ago, the Minnesota Department of Revenue dropped a real bomb on and this issue. In the only official fiscal analysis that legislators will have, they estimated that if the legislature totally conformed to the new federal tax changes, it would increase taxes on Minnesotans by approximately $459 million in 2019 and by $1.1 billion in fiscal years 2020-2021! The House and Senate majorities are clearly not going to allow that to occur, so this complication could reduce the amount of conformity that is eventually adopted.
NFIB’s Top Priorities on Tax Conformity Are:
20% Income Deduction For Pass-Through Firms
Conforming to the 20% pass-through tax deduction for most small businesses that are organized as flow-through companies, such as Sub S or LLCs, and who do not pay the corporate income tax is our top priority. This large 20% deduction of income will be very helpful and will reduce rates significantly for many small businesses.
Section 179 Deduction
Making significant progress on or conforming entirely on the critical section 179 deduction is another top priority. The new federal law just raised the deduction from a half million dollars to $1 million per year. Minnesota law allows only a mere $25,000 per year with the balance amortized over the following five years. NFIB is pushing very hard to repeal the add-back provision and increase the amount of this deduction.
Estate Tax Exemption
Always a hard sell with our governor, but we are urging legislators to make more progress on Minnesota’s estate tax exemption which is currently phasing into a $3 million per person while the new federal law now allows $11 million per person.
Across-The-Board Income Tax Reduction?
Finally, possibly some of the new revenue or windfall from conformity could be used to enact an across-the-board income tax reduction on all of Minnesota’s four rates to help out taxpayers who may realize tax increases with conformity due to the loss of previously available exemptions and deductions.
This unexpected opportunity to conform to the new federal tax law provides a real opportunity for Minnesota to improve our uncompetitive tax structure but the willingness of Governor Dayton to partner with the legislature on this critical issue is really in question. Barely conforming or failing to conform at all could pose a real problem for Minnesota taxpayers in 2019 when they file their 2018 taxes.
More Relief for the Individual Health Insurance Market?
NFIB is currently having discussions with legislative leaders to see if it’s possible to provide another round of relief or subsidy for our many members who are in the ravaged individual market. Last year the legislature appropriated $326 million to subsidize individuals’ health insurance premiums and only about $200 million of that was spent in the final analysis. We are exploring the possibilities of using the remaining funds again, although they were earmarked for other spending when passed last year.
The new reinsurance law that NFIB strongly supported has helped, the new rates are ranging from on average of a 13% decrease to a 2% increase. The market does appear to be recovering and the days of the 50% to 67% intolerable increases has come to an end. The problem is people are receiving in general a 30 to 40% increase again due to their starting point being 25% lower than what their actual premium should’ve been last year.
Other Issues
There is a possibility that some issues from last session may be revisited such as the critical preemption legislation and other bills, although Governor Dayton vetoed this legislation last session and appears to stand strong with left-wing groups that are totally opposed to preemption. Watch out, St. Paul business owners.
