Multiple Tax Proposals in Minnesota
With a projected surplus of $1.65 billion, some policymakers in Minnesota want tax reform. Several plans are being discussed in the state legislature, ranging from a $300 million tax cut proposed in the updated budget of Governor Mark Dayton (D) to a $1.35 billion tax cut proposed by House Republicans.
The first plan from Senate Republicans can be largely broken down into two parts – individual income tax cuts and business tax cuts. It ultimately ends up as a $900 million tax cut, though some details are not yet clear. On the individual income tax side, they plan to cut the state’s lowest marginal tax rate of 5.35 percent, but have not yet revealed what the new rate will be. They also propose to phase out the tax on Social Security income, create a tax credit for college graduates paying student loans, and raise the estate tax exemption to an amount closer to the federal exemption of $5.49 million.
The Senate Republican plan also reforms business taxes in several ways. They propose exempting the first $100,000 of market value for “main street” businesses from the statewide business property tax, and more importantly, repealing the automatic inflator. They also plan to create a property tax credit for agricultural land and change the Section 179 depreciation schedules.
As we highlighted in our book Minnesota Illustrated, the statewide business property tax, which is in addition to the regular property tax paid by residents and businesses, is both unique and problematic for the state. Commercial and industrial properties pay 95 percent of the tax, while cabins pay the remaining 5 percent. The tax mandates an automatic increase of taxes collected, and revenue from the tax has increased 46 percent from 2002 to 2016. Collections from the tax are growing faster than inflation. Repealing the automatic inflator is a step in the right direction for the state.
Source: Minnesota Illustrated
House Republicans are seeking a bigger tax cut, to the tune of $1.35 billion, though specific details are not yet available. Minnesota Public Radio reported that House Speaker Kurt Daudt (R) doesn’t expect cuts to income tax rates, but said the plan instead will focus on targeted cuts for Social Security recipients, farmers, business owners, and college graduates with high debt levels.
Governor Dayton has put forward a more modest plan, citing concerns about future state revenues under the new Trump administration. The governor’s plan does not include sweeping tax reform, but rather a $300 million package targeted at low-income residents and child care support.
- Cut to lowest marginal individual income tax rate
- Phase out of tax on Social Security income
- Tax credit for student loans
- Exempting first $100,000 of value for “main street businesses” under statewide business property tax
- Repeal automatic inflator of statewide business property tax
- Change depreciation schedule
- Property tax credit for agricultural land
- Bring the estate tax closer to the federal level
- No specific details yet, but plan to focus on targeted tax cuts to Social Security recipients, farmers, business owners, and college graduates with student debt
Governor Mark Dayton
- Targeted relief for low-income residents and child care support
Specific details for the House and Senate plans are still unclear, but the final plan will likely face challenges. Governor Dayton has previously signaled that he does not want to see broad, structural changes to the tax code.
Minnesota needs broad tax reform. The state currently levies the third highest individual and corporate income tax rates in the country. Its property tax system is unnecessarily complex and burdensome to businesses. The state ranks 46th in our State Business Tax Climate Index.
While the Senate Republican plan comes the closest to broad tax reform, work is needed on all three plans. Targeted credits and carveouts will not boost economic growth in the state. Instead, policymakers should look to real reform that will improve the tax code for everyone in the state.
Published at Wed, 22 Mar 2017 16:19:00 +0000