The tax cuts proposed by Senate Republicans that passed the Senate on Thursday would predominantly benefit wealthier Minnesotans.
That's according to the nonpartisan Senate Counsel, Research and Fiscal Analysis office, which has provided a breakdown for the two major tax cuts proposed by the Senate GOP in response to Minnesota's $9 billion-plus state surplus. The cuts would cost the state $3.3 billion this year and a further $5 billion in the following two years.
The Republicans' plan — proposed by Rochester Sen. Karla Nelson and which passed by a 42-24 vote on Thursday (with six DFLers voting in favor) — would reduce the lowest income tax bracket from 5.35% to 2.8%, and would remove income taxes on all Social Security income.
According to the breakdown, lowering of the first income tax bracket to 2.8% would pay off the best for households earning between $150,000 and $249,999, who would see average savings of $1,161 per year, while those earning $500,000 or more would pay $814 less.
Minnesota's lowest earners (those earning less than $10,000 who barely qualify to pay state taxes on their income) would only see an average benefit of $63 per year, while those earning $10,000 to $19,999 would be $87 better off.
Almost 543,000 of Minnesota's lowest earners would see no benefit at all.
The ending of state tax on Social Security income would be hugely beneficial for Minnesota's wealthiest retirees.
According to the breakdown, Minnesota households receiving Social Security and who have an overall income of $250,000 to $499,999 would see their taxes reduce by $2,558 on average, while those married and filing jointly would save $2,732 on average.
Those with an income of $20,000 to $29,999 would save $93 on average.
It's currently the case in Minnesota that the lowest-income taxpayers pay very little tax on their Social Security income, with federal rules excluding Social Security benefits from taxation if married filers' income is less than $32,000, or a single filer's income is less than $25,000.
Single filers earning $25,000-$34,000 and married filers earning $32,000-$44,000 get to exclude 50% of their Social Security benefits from taxation, with those earning above these amounts getting to exclude 15% of it.
The Republicans' tax proposals have prompted criticism from the DFL, which has noted the cuts would primarily benefit wealthier Minnesota households.
"The two major features of the bill are the large income tax break for all filers, and in that income tax break, $166 million of relief goes to individuals who earn more than $250,000 a year," said Sen. Matt Klein (D-Mendota Heights), during Thursday's hearing.
"In the social security tax relief portion, $20 million is spent on people over the age of 62 who make more than $500,000-a-year. Half a billion dollars is spent on the top 13% of earners every year in our state. At the same time 543,000 filers ... will receive no tax relief whatsoever from this bill."
The DFL has proposed alternatives that would target lower-income Minnesotans, but the GOP has in turn criticized the DFL for focusing on spending the surplus rather than cutting taxes — with the DFL proposing that a significant chunk of the $9 billion budget surplus be used to invest in public schools.
Rather than cut state income taxes, the House DFL is proposing a $325 rebate for each child under 17 years old. which phases out for married filers after $140,000 of earnings and single filers after $70,000.
It's also proposing to raise the dependent care tax credit to a maximum of $3,000 a year through 2028 for filers (phasing out after $125,000 of household income), increase the student loan credit to $1,400 a year — up from $500 — and change the renter's credit to a refundable tax credit, a move it says would benefit 120,000 renters.
Minnesota Republicans have criticized the plans, saying based on its own calculations that it amounts to less than $600 million in cost to the state over the next three years, while the DFL is proposing $12.2 billion in new spending over the same period.
The Senate GOP says its plan will provide much-needed tax relief for Minnesotans struggling with inflation, while the DFL says its targeted plans will help lower income families with "out-of-control" child care costs and meeting rent/mortgage payments.
"Working families have waited long enough for tax relief—our state is still one of the highest taxed states in the country, and our staggering $9 billion surplus is proof that folks have been over-taxed for far too long," said Sen. Andrew Lang (R–Olivia).
"It’s time for us to provide meaningful and permanent tax relief, and it’s time for us to eliminate the antiquated social security income tax. Today, we’re putting Minnesotans first by providing economic relief that keeps more money in taxpayers’ pockets."