Competing Tax Plans Emerge at Minnesota Legislature

March 2, 2022

Governor, House light on long-term relief

Competing Tax Plans Emerge at Minnesota Legislature

Senate Republicans and Governor Walz have unveiled competing plans, both with an emphasis on individual relief. In January, Gov. Walz rolled out a small tax package as part of his “supplemental budget” – the name for spending and tax packages when it’s not a budget year. Included in this package was $700 million for “Direct Payments to Minnesotans,” which the Governor dubbed “Walz Checks.” This plan provides a $175 payment to individuals whose income is less than $171,000 per year and $350 for married filers whose income is less than $285,000 per year. With the state’s projected budget surplus now at $9.25 billion, Gov. Walz recently suggested he might increase the one-time check proposal to $500 per individual and $1,000 per couple. Other elements of Gov. Walz’s tax plan include:

$1 billion in frontline worker payments, up to $1,500 per qualifying worker;
$120 million for continued federal conformity on treatment of COVID-related grants and forgivable loans;
$45 million to expand the child and dependent care credit, by raising the income threshold and increasing the credit;
$237 million to exempt local governments and nonprofits from the sales tax on construction materials; and
$17 million for the “Angel Investment” Tax Credit.

While Gov. Walz has not proposed any permanent tax rate reductions, Senate Republicans have proposed cutting the bottom individual income tax rate nearly in half. The Senate Republican plan would reduce the lowest bracket from the current rate of 5.35% to 2.8%. This would amount to $8.51 billion in relief over the next three years, with average person seeing a $500 annual cut and a family making $100,000 seeing a $1,000 per year savings. Senate Republicans also propose fully eliminating the tax on Social Security income. They say this would save the average senior about $1,313 per year. In addition, the Senate Taxes Committee, chaired by Sen. Carla Nelson (R-Rochester) has heard proposals to increase and simplify the R&D credit, eliminate the corporate AMT and pass-through minimum fee, and fully dedicate the sales tax on vehicle parts and repair to road and bridge funding. Meanwhile, Minnesota House Democrats have largely stuck to the Governor’s tax/rebate plan. House Taxes Chair, Rep. Paul Marquart (D-Dilworth), has also proposed eliminating the remainder of “June accelerated” sales tax collections that were not repealed last year. Marquart’s committee has also heard the R&D credit bill, as well as proposals to expand the student loan credit and exempt 2021 UI benefits from state tax. Legislators have also offered less celebrated proposals that would have a big impact. Sen. David Osmek (R-Mound) and Rep. Jerry Hertaus (R-Greenfield) introduced a bill to overhaul the individual income tax code. Their proposal would trim each existing bracket to:

4% on income up to $28,080/$41,050
5% on income up to $92,230/$163,060
6% on income up to $171,220/$284,810
7% on income over $171,220/$284,810

Hertaus and Osmek are also the primary sponsors of a bill to fully repeal the state general property tax and conform to the federal estate tax exemption amount (2022: $12 million). Rep. Joe McDonald (R-Delano) and Sen. Michelle Benson (R-Ham Lake) introduced a bill to reduce each income tier by 1%. McDonald also introduced a bill to drop the corporate tax rate by the same amount. Rep. Greg Davids (R-Preston) has proposed a state tax credit for business equal to 10% of each employer’s FICA tax. NFIB continues to advocate for long-term tax relief that will help small business get back on track and continue to grow our state’s economy. This includes meaningful individual income tax relief, repeal of the statewide general property tax levy and conforming to the federal estate tax exemption.

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Minnesota

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