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Legislative News and Views - Rep. Jim Davnie (DFL)

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Legislative Update - MN Budget & Federal Tax Bills

Friday, December 8, 2017

Dear Neighbors,

These are remarkably tumultuous political times on the federal, state, and local levels. There is a lot for all of us to try and track, from the resignation of state and federal officials because of sexual harassment (including the announced resignation yesterday of Sen. Al Franken sometime in the coming weeks), to proposed significant tax changes on the federal level, continued movement on health care, and so much more. I wanted to take a moment and touch on two issues of state concern.

November Budget Forecast

On Tuesday, Minnesota Management and Budget announced the November budget forecast, projecting a deficit of $188 million. Nearly all of that shortfall ($178 million) is a result of the inaction by Republicans in the US Congress to pass funding for the Children’s Health Insurance Program (CHIP). In addition, our budget deficit grows to $302 million when other ongoing obligations, such as funding the legislative branch, are taken into consideration. The legislative funding was vetoed by Governor Dayton earlier this year in an effort to get Republicans to negotiate on the tax cuts for corporations and the wealthy they passed. The Governor’s veto occurred for the exact reason that these tax cuts for corporations, the wealthy, and big tobacco would send our state budget into deficit, and they did. What’s worse – the deficit is set to grow over the next few years to $586 million.

Going into the 2017 session, Minnesota had a $1.6 billion budget surplus. In less than a year, the Republican budget plan turned that surplus into a deficit. This is unacceptable.

This irresponsible budgeting, in addition to the Republican federal tax bill, threaten Minnesota’s economic stability and the livelihood of Minnesota families. As we head toward the next legislative session, convening on February 20, we should be cautious in order to ensure economic stability now and in the future.

I will continue pushing for a plan that ensures Minnesota’s budget works better for everyone, not just the wealthy. I’m also continuing to push our federal elected officials to keep fighting for essential programs like the Children’s Health Insurance Program funding.

Federal Tax Bills Being Debated

One of the many elements of risk and uncertainty expressed by economists who created the budget forecasts for the state was the uncertainty around the current debate of federal tax legislation in the US House and Senate. The impacts of this legislation are highly uncertain, but I can say, almost without doubt, that whichever version of the Republican-controlled House and Senate tax bills are passed, it will have astounding effects on working and middle class families in Minnesota and across the country.  See for example this New York Times analysis of how the elimination of state and local tax deductions (SALT) will have detrimental impacts on places like Hennepin County, where tax payers may lose their ability to deduct state income taxes, state property taxes, and other deductions.

This isn’t just a big hit to those who own expensive property, it’s also a significant blow to low income and middle class families by increasing their taxable income through the repeal of many deductions and exclusions.

We know a little more about the version of the tax bill passed by the U.S. House. Preliminary estimates are that you will actually pay more in Minnesota taxes as a result of this federal bill. That is because the proposal eliminates many current tax deductions and credits that lower your federal taxable income, the starting point for your Minnesota taxes. Very preliminary projections suggest that Minnesota state revenue could increase by as much as $700 million annually if the U.S. House bill were to become law. Here is a list of some of the itemized deductions that would be modified or eliminated entirely in the House bill:

  • Repeal the medical expense deduction.

  • Repeal the state income and sales tax deduction.

  • Limit the property tax deduction to $10,000 ($5,000 for married separate filers).

  • Repeal the personal property tax deduction.

  • Disallow the mortgage interest deduction for debt secured by a second home and reduce the limit on allowed indebtedness from $1 million to $500,000.

  • Increase the limit on charitable contributions from 50% to 60% of Federal Adjusted Gross Income.

  • Repeal the deduction for casualty or theft losses, with exceptions for hurricane-related losses.

  • Repeal the deduction for unreimbursed employee expenses.

  • Repeal the deduction for tax preparation expenses.

  • Repeal the overall limit on itemized deductions.

  • Repeal deduction for moving expenses (other than for military service members).

  • Repeal deduction for alimony payments and the corresponding inclusion of received alimony.

  • Repeal exclusion for dependent care assistance programs, beginning in tax year 2023.

  • Repeal exclusion for adoption assistance programs offered by an employer. 

There is a lot to sort through, but some areas of particular concern are:  (1) The elimination of the medical expense deduction, which would harm many seniors and people living with disabilities. (2) The elimination of the mortgage interest deduction for second properties (i.e. your family’s lake cabin), (3) The repeal of the deduction you can currently take for expenses incurred as an employee not reimbursed by your employer. Many school teachers itemize the cost of classroom supplies that they purchase out of their own incomes.

Additionally, the bill also doubles the estate tax deduction to $11 million before eliminating it in six years and eliminates the alternative minimum tax that exists to ensure that the wealthy don't use so many different tax strategies that they avoid paying income taxes entirely.

I’m particularly concerned about the negative impact this bill could have on the next generation’s path to the middle class through education. The elimination of the student loan interest deduction will be particularly harmful for younger taxpayers while the taxation of graduate student tuition waivers as personal income will make graduate school more expensive. Since these waivers are not cash they provide the student with no money with which to pay the new taxes. This is a particular concern, given the important place that the U of M plays in our state’s economy. Lastly the proposal to tax college and university endowments could reduce student access to scholarships that make higher education more affordable.

Take Action – Call Lawmakers

If you’re as concerned as I am by the sound of these proposed tax provisions, call our lawmakers and tell them what you think. This tax bill is not done yet. The House and Senate have to pass another compromise version through the conference committee and repass that bill in both the House and Senate.

US CAPITOL SWITCHBOARD: (202) 224-3121

We can’t stop fighting these horrible ideas and putting pressure on our lawmakers, and I’ll keep fighting these bankrupt economic ideas at the Capitol in St. Paul. Please let me know if you have any questions. I can be reached at 651-296-0173 or Rep.Jim.Davnie@house.mn .

Sexual Harassment

The #MeToo movement has put the issue if sexual harassment center stage.  The resignation of Senator Franken this week and of two legislators last week has given the issue a particularly high profile in Minnesota.  While I could speak to some of the political aspects of the issue, instead I want to remember the women who have been victims of this harassment.  I know that for many victim/survivors having cases of abuse and harassment detailed in the media can bring back a flood of difficult memories.  If you are looking for support, the Sexual Violence Center in Minneapolis (SVC) has a crisis line: 612-871-5111 and online resources.

https://www.sexualviolencecenter.org/  Statewide referrals: http://rapehelpmn.org/

Thanks,

Jim Davnie

State Representative