Seniors no longer pay taxes on Social Security income, millions of Minnesota residents could see a small income tax cut and tens of thousands of families and renters across the state would be eligible for more tax breaks under a package deal struck Saturday at the divided Capitol.
Top legislative negotiators announced the $4 billion package as transformative for Minnesota residents two years after battling the COVID-19 pandemic and with soaring costs in nearly every aspect of their lives.
“We have in this bill the largest tax cuts in state history,” said State Representative Paul Marquardt, DFL-Dilworth, chair of the House Tax Committee. “It will positively impact – in a real and meaningful way – on families, seniors and businesses across the country.”
The tax agreement is one of the first major deals to materialize at the Capitol as lawmakers face a Sunday night deadline to pass the year’s bills. But her fate is closely linked Deal It includes an additional $4 billion in proposed spending on classrooms, public safety and health care, which legislative negotiators continue to battle for as time runs out.
“It is our duty to get these resources back into the hands of the people of Minnesota to help them better afford their lives during this time of hyperinflation,” said Senate Tax Committee Chair Carla Nelson of Rochester. “We must not let this historic, changing tax bill become hostage to many of these other things.”
Both sides made tax cuts a priority this session with an expected budget surplus of nearly $9.3 billion over the bottom line, but they started the January session with widely diverging priorities.
In the final deal, the Republicans who control the Senate secured the repeal of state taxes on Social Security income, a top priority they had been pushing on the Capitol for decades. They estimate the change will affect 460,000 seniors in Minnesota.
The Republicans also called for the first-tier income tax rate to be lowered from 5.35 to 2.8%, roughly $1,000 in savings each year for a family making $100,000. The final agreement permanently lowers that rate to 5.1%, a much lower reduction than they originally suggested.
In turn, House Democrats got their top priority to convert a tenant tax refund into an income tax credit and boost eligibility with an estimated 125,000 filings. Overall, Democrats say there are more than $600 million in property tax cuts over several years on the bill for homeowners and renters.
The deal also increases the child and dependent care tax credit, which will help an estimated 81,000 families. Democrats have also successfully pushed for the inclusion of a child care tax credit, Marquardt said, which would allow families with incomes of up to $105,000 to receive a credit of up to $2,000 for one child between birth and 4 years of age.
Notably absent from the final deal was one-time discount checks for Minnesota, which was a top priority for DFL Governor Tim Walz. House Democrats said they initially offered his rebate plan in negotiations, but senators refused to include it in favor of permanent tax relief. Senator Tom Buck, Ai Cook, said he had concerns that one-time checks would be subject to federal taxes.
“Why did we want to send so much surplus to Washington?” Beck, a former Senate tax chief, said. “I think people will be very disappointed.”
In addition to the $4 billion in new spending over the next three years, the global framework hit by Wales and senior leaders leaves an additional $4 billion in bottom line. Melissa Hortmann, the head of the lower house of the German Football League, said that all agreements on spending and savings must be secured before the tax bill is passed.
But legislative negotiators have struggled to resolve their differences over how to increase spending on classrooms, health care and public safety. Talks are taking place behind the scenes to craft a $1.4 billion package of construction projects into a peg bill.
Talks are particularly tense over education, with the two sides squabbling all week over how to split $1 billion on things like private education costs for school districts, funding for student mental health and literacy programs.
Democrats are also seeking to allow hourly school employees to collect unemployment insurance, which Republicans do not support.
“I don’t know what else to do,” said Roger Chamberlain, chair of the Senate Education Committee. “We don’t have days and days, we hardly have hours to find out.”
House Education Head Jim Daphne, DFL-Minneapolis, said the tax code agreement should be a “model” for lawmakers trying to strike a deal on school funding.
“It’s Saturday evening, it’s time to close that law,” Daphne said. “We have the resources to provide these services, and we have the needs.”
Walz said he doesn’t want to invite lawmakers back to a special session to work overtime to finish their work, which means lawmakers face a midnight deadline on Sunday to finalize the bills.