DFL tax plan in the works includes 'millionaire tax,' shield from social security income

[MUSIC PLAYING] EMILY BRIGHT: I'm Emily Bright in for Cathy Wurzer and this is Minnesota Now. It is Tuesday, April 18. It's tax day, the last day to file your returns. It's the time of year when how much we pay for taxes is top of mind for many people. Right now, the state legislature is considering a tax bill that could define what you pay for next year. Representatives in the House Taxes Committee spent the morning hearing from representatives of tribal nations, local governments, and advocacy groups on a DFL tax plan.

Here are some of the highlights. The bill would send one-time payments to low and middle income earners and shield more retirees from paying taxes on their Social Security income. It also includes some property tax relief to offset rising prices. And it hikes taxes for some by creating a so-called millionaire tax, and drawing more from corporations that do business outside of the country. All these points are central as lawmakers try to pass a budget in the next month. MPR news reporter Brian Bakst has the details.

BRIAN BAKST: The tax discussion picking up steam in the legislature is awash in rhetoric partisans love to bend to their advantage. DFL House Speaker Melissa Hortman.

MELISSA HORTMAN: With a historic budget surplus, we are bringing forward the largest tax cuts in state history.

BRIAN BAKST: GOP Senate Minority Leader Mark Johnson.

MARK JOHNSON: Minnesotans should know the Democrats budget this year will lead to higher taxes now and even higher taxes into the future to support their aggressive government growth.

BRIAN BAKST: Those competing assessments will be on repeat in the weeks ahead. And there's truth in both. Some Minnesotans would pay more while others would see their tax burden drop under proposals the legislature's Democratic majorities are teeing up. A new house DFL package would mean one-time rebates affecting 2.5 million people. Single filers who earn less than $75,000 in 2021 could claim a $275 rebate. Joint filers with twice that income could pull down 550.

And there would be similar payments for up to three dependents. House tax chair Aisha Gomez says targeting and capping the rebates is key.

AISHA GOMEZ: We don't need to send a relatively small check to a relatively wealthy person that isn't going to be really felt in their personal economy. I guess I'll speak for myself and say that I think that doing a refund like this is a good use of one-time money in a tax bill. And so we really focused on getting money into the pockets of the Minnesotans who need it the most.

BRIAN BAKST: The same philosophy applies to Social Security. Despite loud calls to eliminate Minnesota's taxation of that retirement benefit, the House bill doesn't do that. Instead, it increases the income floor before the tax applies. Going forward, DFLers say a full Social Security exemption would apply to 3/4 of people with that income compared to about half now. Couples earning less than $100,000 annually could count on a full exclusion. DFL representative Dave Lislegard had advocated for a complete repeal, but says he's pleased with this result.

DAVE LISLEGARD: You know that you're going to hear that, hey, they didn't eliminate the tax on full elimination. Right? Well, I tell you what. This bill is going to improve people's lives.

BRIAN BAKST: By stopping where they did, Democrats said they were able to boost property tax relief for senior citizens and others. Homeowners who have seen soaring market values drive up their tax bills would get help. So would more renters. Again, Gomez.

AISHA GOMEZ: And so that was the tradeoff between doing a full Social Security exemption and then investing in these other programs and these other Minnesotans who really need the help in this time.

BRIAN BAKST: The DFL plan also puts money toward a new working family tax credit of up to $1,175 per child, which has income eligibility limits. Other parts of their bill would raise taxes. Earnings above $600,000 for single filers or $1 million for joint filers would be subject to a new fifth-tier rate of 10.85%. Corporations would have to pay more on income earned overseas. Combined, those two taxes would generate nearly $1 billion for the next budget. Republicans are seizing on that. Here's Senator Bill Weber.

BILL WEBER: Friends, we have a $17 and 1/2 billion surplus. Actually, $19 billion surplus except for the math change that was made by the majority. And yet the Democrats are still trying to raise taxes on Minnesotans.

BRIAN BAKST: Speaker Hortman says not all of the surplus carries forward into the future, making it hard for lawmakers to fund programs with certainty. She says there is still plenty of debate ahead over what taxes, fees, and other revenue raisers survive, and in what form.

MELISSA HORTMAN: The legislative process is we start with a block of clay and we are sculpting. And we are continuing that process of sculpting.

BRIAN BAKST: Lawmakers must put down their tools by May 22 if they want to pass the first on-time state budget since 2013. Brian Bakst, MPR News at the Capitol.

EMILY BRIGHT: And Brian is with us to help explain further. Hi, Brian. Thanks for coming on the show.

BRIAN BAKST: Hey, Emily.

EMILY BRIGHT: So you gave us our timeline. Lawmakers are supposed to wrap up their session on May 22. And deciding how much money the state takes in is obviously critical to that larger budget discussion. So give us some perspective. How much would the tax breaks cost the state? And how much would the higher taxes raise?

BRIAN BAKST: So lawmakers are working within this framework that they came to in late March whereas they were going to spend $3 billion on tax cuts. And by that, it's an array of new credits, and the subtractions, and also aid dollars that go to local government. So that's all included under that umbrella. But they're also raising some taxes, which gives them more money to use in other areas. In addition, there are some of these other budget bills might have specific fee increases or dedicated taxes such as a-- the metro sales tax for either housing or transit.

Those are in different bills. So in this area in the tax bill, they're looking at about $3 billion. They're looking to shave that from what people pay or ultimately owe.

EMILY BRIGHT: Now with the DFL trifecta, the party has a lot more ability to pass bills than in most years, as we've seen. But when it comes to taxes, there are a lot of details, a lot of sculpting to work out. So what are the main sticking points with the DFL right now?

BRIAN BAKST: Well, you heard me talk about that new millionaires tax and that new tax on corporations. Those are-- they might not wind up in the bill that the Senate DFLers put forward when they come out with their tax plan probably later in the week. And Governor Tim Walz has been hesitant to do anything with the income tax in terms of rates, the Minnesota system where a certain percentage of your income is taxed at different rates depending on how much you make.

And so he says that he's willing to look at that. But he's not necessarily bought into that yet. And so all of these pieces of the puzzle will have to be sorted out. In addition, the Senate is looking at perhaps doing the full repeal of the Social Security income tax because a lot of their new members ran on that. And so they might have to answer for that when they go back home.

EMILY BRIGHT: Yeah, now some local governments have been asking for voters to be able to weigh in on new sales taxes. But that didn't make the House proposal. So what are local and House leaders saying about local sales taxes?

BRIAN BAKST: That's right. A lot of these local sales taxes have already been out to voter referendums because these cities have to either go to voters or take some city council action depending on which city you are in order to even ask the legislature to give you permission to raise your local sales tax. So these have been pent up over years because the last year, there was a stalemate. So there was no tax bill passed. There's about three dozen of these local sales tax initiatives that are sitting there waiting for the legislature to say, go ahead.

The Senate is inclined to give them that permission because even among Republicans, they say voters weighed in on these. And so why should we stand in the way? The House tax chair, Aisha Gomez, is just philosophically opposed to it. She thinks it's a regressive tax. And she's not sure that she wants to put so much burden on that tax. And so she's maybe going a different route.

AISHA GOMEZ: There is an acute need in Saint Paul. And because of their property tax base and the wear on their roads, because of them being the capital city, we believed that they warranted this kind of one-time aid to buy us a year to look at the bigger picture of sort of local taxes.

EMILY BRIGHT: OK.

BRIAN BAKST: So what she's talking about there is Saint Paul was asking for 1% on its sales tax for parks and to improve roads. It's not in the bill, but there's a $30 million appropriation that would go to Saint Paul so it could fix up its roads.

EMILY BRIGHT: The tax bill also includes more money for local and tribal governments. What would they get? What could they use the money for?

BRIAN BAKST: Yeah, that's right. There's $100 million per year for kind of the city aid program and another $100 million per year for the county aid program, and $75 million per year for tribal programs. And the thinking there is it will help pay for whatever maintenance, or city services, or police and fire. And that's money that the locals will have to lean less on the property tax. And so lawmakers have typically said that these state aid programs are a property tax relief valve. It's not a one-for-one thing.

But they think that the more money they put into those programs, the less that the cities and counties have to go to their local property taxpayers and ask for more.

EMILY BRIGHT: OK, well, Brian Bakst, thanks for all the work you're doing keeping us up to date on what's happening at the Capitol.

BRIAN BAKST: You're welcome, Emily.

EMILY BRIGHT: Brian Bakst is a political reporter for MPR News.