DFL says plan would cut taxes for families, raise them for corporations

The tax plan is likely to be opposed by Republicans in the Senate.
Author:
Publish date:
flickr-taxes-cash

Democrats in the Minnesota House put forward a plan that they say will cut taxes for two-thirds of Minnesotans while raising $1.2 billion for education.

The plan revealed on Monday would close supposed loopholes on foreign income earned by Minnesota-based corporations, while at the same time increasing tax allowances for Minnesota families.

The money made from the changes would be used to increase the state's education budget by 3 percent in 2020 and 2 percent in 2021.

The plan is already facing opposition from the Republican-controlled Senate, who last week released a budget that pledged no tax increases of any kind, coming on the heels of Gov. Tim Walz proposing a 20-cent increase in the gas tax over the next two years, which the House DFL backs but instead wants it implemented over four years.

But House Democrats say that its tax bill would help reverse "destructive Republican budgets that put the wealthy and corporations first," a nod to the recent federal tax bill that contained huge tax cuts for the largest U.S. companies and highest earners.

Below are some of the key points of the House DFL's proposal – you can read the full tax bill here.

Increasing the standard state tax deduction

Married filers can claim $13,300 for the standard deduction currently, but this would be increased to $24,400 to align with the federal deduction. This means the first $24,400 of household earnings would be free from state taxes, a move the DFL says would cut taxes for two-thirds of Minnesotan households, with the median household paying 7 percent less.

When combined with dependent exemptions that were scrapped for federal tax returns, but retained at the state level, a family of 4 would be able to earn $32,900 before incurring any state tax. It also means 56 percent of senior citizens won't pay tax on their social security income.

Other tax credits

The plan would also increase allowances for lower-earning homeowners, increasing the Homestead Credit Refund from $2,580 to $3,020 for those earning up to $42,709; along with smaller increases for those earning between $42,710 and $115,439.

There would also be increases in the Renters Property Tax Refund for those earning up to $64,999, while changes to the tax code would allow farmers and small businesses to deduct up to $1 million in new or used equipment in the first year – matching the federal deduction.

The Military Service Credit, which gives servicemen and women a $750 tax credit, is also being expanded so that anyone earning up to $50,000 can qualify for it. Currently it's $30,000.

Follow Bring Me The News on LinkedIN

Increasing corporate taxes on foreign earnings

The DFL says it wants to modify special tax preferences to "level the playing field for working families, senior citizens, and farmers."

It intends to raise $361 million in 2020-21 and $218.5 million in 2022-23 through the "deemed repatriation" of deferred foreign income.

It also intends to raise $384 million in 2020-21 and $327.8 million in 2022-23 by implementing a minimum tax – known as the Global Intangible Low-Taxed Income – on U.S. shareholders of foreign corporations.

Changes to income tax brackets

While the increase in the standard deduction would take more earnings out of tax altogether, there are some changes that would mean some of the state's medium-to-higher earners pay a higher tax rate on a portion of their income once it hits the "third tier."

Currently, the second-tier of state taxes – paying a 7.05% rate – is between $38,771 and $154,020 for married filing jointly, and $26,521 and $87,110 for single filers.

Under the DFL proposal, the second tier wouldn't start until $40,240 for married filers and $27,520 for single filers. Anything under this amount would be taxed at the first-tier rate of 5.35%.

However, the start of the third tier – paying a 7.85% rate – would start at $150,900 for married filers and $84,990 for single filers, bringing an extra $3,120 for married and $2,120 for single filers into the higher tax bracket.

Increasing capital gains, estate taxes

As well as corporate income, the DFL would increase the taxes on some of Minnesota's wealthier residents by imposing an extra 3 percent levy on capital gains above $500,000, though this would exclude any capital gains made in the agricultural industry.

The bill would also freeze the estate tax exclusion at $2.7 million, when it was scheduled to rise to $3 million in 2020.

Next Up

Related