Legislature begins weighing Walz tax rebate, Social Security tax cut, capital gains tax
Under the plan, 90% of Social Security payment recipients would get a tax cut or not pay taxes at all on their Social Security income
ST. PAUL — Minnesota lawmakers are now weighing billions of dollars in tax-related requests from the governor, including rebate checks to state residents, a reduction in Social Security income tax and the creation of a capital gains tax.
The Senate Tax Committee on Wednesday, March 1, heard a major component of Gov. Tim Walz’s tax proposals. In all, the governor’s tax plan calls for around $5.5 billion in tax cuts for the next two years — about one-third of the record $17.5 billion budget surplus.
It’s the beginning of the long process between Democratic-Farmer-Labor majorities in the House and Senate, Walz and Republican minorities in each chamber. While DFLers have similar priorities to the governor, some potential points of departure include direct payments. Republicans are now also pushing for direct payments and also want the complete elimination of the Social Security tax, something DFLers oppose.
Department of Revenue Commissioner Paul Marquart explained the details of the governor's tax bill to senators on Wednesday, outlining billions in child tax credits he said would make the state an attractive option for families.
“It would make Minnesota a very, very tax-friendly state for families,” he said. “One of our big issues is workforce shortage, and this would help not only retain families, but I truly believe it would attract new families in the state of Minnesota and help our workforce.”
Under the plan, 364,000 families in Minnesota would get an average benefit of about $1,500, something Marquart said would reduce child poverty in the state by 25%.
Eligibility would work this way: Families get $1,000 per each child under age 18 for up to three children. The credit would phase out for families with three kids and an income of $80,000. Families with one child would see the benefit phase out at $60,000.
Past the child tax credit, Walz is also proposing billions of dollars in child care tax credits in coming years under a plan that would raise the phaseout for the credit to $200,000 for joint filers.
A cut to income on Social Security taxes is another part of the governor’s tax bill getting heard by the Senate and House this week. Walz is proposing a partial reduction in the tax that would affect about 377,200 tax returns and on average reduce taxes by $278, Marquart said. The state would lose about $200 million in the upcoming biennium, according to Department of Revenue estimates.
Under the plan, 90% of Social Security payment recipients would get a tax cut or not pay taxes at all on their Social Security income. It would raise the phaseout for the tax on Social Security income to $120,000 per year for married joint filers. Republicans want to eliminate the tax completely, and legislative Democrats have been noncommittal on the issue, though leadership opposes a complete elimination of the tax.
Direct payments was another major component of the tax bill discussed Wednesday in the Senate Tax Committee. The plan remains the same as previously promoted by Walz: $3.9 billion in state funds would go directly to around 2.5 million tax filers in Minnesota. On average, filers would get checks of $1,500.
Single filers would get $1,000 and joint filers would get 2,000, plus $200 for each child up to three children for a total of 2,600.
DFL leaders in the Legislature have not said whether they’d support direct payments.
A sticking point during Wednesday’s committee hearing was over Walz’s proposal to create a capital gains tax in Minnesota that would tax dividends from sales of property or stocks. Gains of $500,000 would be taxed at 1.5% and gains of $1 million would be taxed at 4%.
The plan would raise about $300 million a year for Minnesota.
Sen. Bill Weber, R-Luverne, who represents a district in southwestern Minnesota near the South Dakota border, said Minnesota already has some of the highest tax burden on business in the nation, and that many businesses in his district have moved to Sioux Falls to take advantage of lower taxes.
“We do not need additional problems to grow our businesses in rural Minnesota,” Weber said in urging his colleagues to reject the tax. “We’ve already established our position as penalizing success in this state. I don’t think we need to make it worse.”
Minority Republicans in the Minnesota Legislature are pushing for their own plan to create $13 billion in tax cuts.
They hope to eliminate the Social Security income tax completely and are proposing other ongoing income tax cuts. They’re also proposing rebate checks of up to $2,500 to state residents — what GOP leadership last year called an “election-year gimmick” by Walz, who unsuccessfully pushed for the checks in 2022.
The Republican plan includes a version of direct payments to Minnesotans also supported by Walz. Republicans are proposing $5 billion total in checks of $1,250 for single people and $2,500 for couples.
The Republican child tax credit plan would be a one-time benefit available for two years at a total cost of $3.5 billion, providing a $1,800 tax credit per child under age 18.
Ongoing tax cuts would apply to the first- and second-tier tax rates by 1%, lowering the rates to 4.35% and 5.8%, respectively.
That would result in $3 billion in tax cuts. There’s also an adjustment to the homestead market value exclusion, which would provide $35 million a year in cuts to property taxes.
The Social Security tax elimination would provide an average of $1,277 in tax relief to 472,902 Minnesotans. The state would lose more than $600 million in revenue each year.
Follow Alex Derosier on Twitter @xanderosier or email firstname.lastname@example.org .