Legislators moving quickly on middle class tax cuts
Saint Paul, Minnesota – Today. the House Tax Committee voted to move forward with legislation (HF 1777) to cut taxes for middle class families and to repeal business-to-business taxes. The $514 million tax cut bill would reduce taxes for hundreds of thousands of Minnesotans, largely by conforming to federal tax changes. Just three days into the session, the House is moving at a fast pace to bring these tax cuts forward. State Representative Ann Lenczewski (DFL – Bloomington), chair of the House Tax committee, said it was important to move quickly.
“Our middle class tax cuts affect Minnesotans who are filing their taxes right now, so there is definitely a sense of urgency,” said Lenczewski. “I am hopeful we can work in a bipartisan fashion to move these tax cuts forward so that we can deliver tax relief to middle class families.”
Whenever Congress changes federal tax law, the Legislature must decide whether to conform to the changes at the state level or not. Last session the House included federal tax conformity for tax year 2013 and beyond. However, this did not end up in the final budget signed into law. The legislation passed by the House Tax Committee today would provide $200 million in middle class tax cuts through permanent federal tax conformity. Those tax cuts include:
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$111 million for middle income married families (conforms to federal tax code to eliminate ‘Marriage Penalty’ )
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650,000 families will see an average tax decrease of $120.
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$36 million for working families (Increase phase-out range for Working Family Credit to match Earned Income Tax Credit (EITC))
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More than 50,000 working families will see an average decrease of $300.
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$26.4 million for students, parents paying for college and students paying off loans (Education-related provisions including qualified tuition and related expenses)
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$3.9 million for new homeowners (mortgage insurance premiums deduction)
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80,000 new homeowners will see an average tax cut of $60.
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$7.2 million for homeowners that refinanced or had a short sale
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$1.8 million for Minnesota families with dependents
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25,000 families with household incomes below $38,570 will see a $65 tax decrease.
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$400,000 for adopting families (employer- provided adoption assistance exclusion)
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$1.1 million for 60,0000 teachers (Classroom expense deduction for educators)
(Source: Non-partisan House Research)
The House Tax bill also would repeal three business-to-business taxes (warehousing and storage services, commercial equipment repair (including farm machinery) and telecommunications equipment) that were passed as part of the 2013 budget. Last year those taxes were part of a Senate package that paid for an upfront capital sales exemption for businesses and provided property tax relief by eliminating sales taxes for cities and counties. Then, the legislature faced a $600 million budget deficit and owed our schools $800 million. Since, Minnesota’s economy has improved and the state budget has stabilized. The last economic forecast projected a budget surplus of about $800 million.
“Due to our growing economy, these business-to-business taxes may not be necessary to keep our budget balanced and in a strong position,” said Lenczewski. “We have heard feedback from small businesses on these business-to-business taxes and we believe repealing them, while maintaining our balanced budget, is a good direction to go.”
The repeal of the business-to-business taxes total $314 million. The bill allows taxpayers to apply for a refund for any taxes paid since they took effect. Two of the taxes went into effect on July 1, 2013. The warehouse tax will take effect on April 1, 2014, adding to the urgency to pass this tax cut bill.
Minnesota will receive its next economic forecast tomorrow. This should provide the legislature more information to inform budget and tax decisions this session.
The House Ways and Means Committee is likely to hear this tax cut bill early next week and the full House could vote on it next week as well.