Dear neighbor,
There has been a lot of attention focused on various tax proposals moving through the House and Senate this session. I want to take a minute to clarify differences between the two proposals and to let you know my views on the various components.
First and foremost, I ran on a balanced approach to our budget that called for putting an end to the decade-long cycle of budget deficits, shifts and gimmicks. This session we must balance the $627 million budget deficit and to pay back the $854 million owed to schools—which totals $1.4 billion. It’s my belief that we need to raise the most prudent and responsible revenues possible as we pay back our debts and fund state priorities to strengthen the middle class.
Paying back the school shift
The House tax bill includes full pay back of the $854 million owed to our schools. This is achieved through a temporary surcharge on the wealthiest 0.5% of Minnesotans (joint filers making $500,000 per year). The surcharge will be eliminated once this debt is repaid. The Senate tax bill does not include a provision to pay back the schools.
Taxes on high income earners
The House tax bill includes an income tax increase on the wealthiest 1.1% of individuals by creating a 4th income tax tier (taxable income greater than $400,000 per year for joint filers). These individuals currently pay a lower percentage of income taxes than do low and middle income earners. This increase will affect only 3.3% of businesses. The Senate tax bill increases the rate on the 3rd tier income tax bracket from 7.85 percent to 9.4 percent, which would affect joint filers making $140,000 in taxable income. I support raising revenues on high income earners, but am not supportive of raising revenues on the entire 3rd tier as I fear that this would affect too many Minnesota families.
Clothing and service taxes
The House proposal does not include a tax on clothing or services at this time. The Senate proposal reduces the sales tax rate to 5.675% and includes some services and clothing as taxable items. I am hopeful that the House plan will be incorporated into the final bill and will not include these sales tax changes.
Cigarette and alcohol tax
Both the House and Senate proposals include an increase in cigarette taxes. Each year, the state spends billions in cigarette related costs and Iowa, South Dakota and Wisconsin all have a higher cigarette tax. This will raise over $350 million annually and has been proven to reduce youth smoking.
The House proposal increases the user-based fees on alcohol by 7 cents per beer. The alcohol tax hasn’t been raised since 1986 and alcohol use costs the state billions in alcohol abuse services, criminal justice expenses and health care services annually. The Senate bill does not raise the alcohol excise tax. As part owner of a bar/restaurant, I am well aware of how costs of those who choose to purchase alcohol will go up if the Governor and Senate approve of this tax. Additionally, as a mental health counselor, I’m aware of the social costs of excessive alcohol use.
Property Tax Relief
The House plan provides direct property tax relief for nearly 1 million middle class Minnesotans through the Homestead Credit Refund, retooled renters’ credit and increased funds to cities and counties. The Senate plan does not include a Homestead Credit Refund but does also increase aid to cities and counties. Property tax relief is a direct way to put more money in the pockets of homeowners all over the state, and I support this.
Both tax plans have passed and are now in conference committee. In conference committee, differences between the two proposals will be negotiated and identical proposals will come before the House and Senate for a final vote. I am hopeful that the final bill will fully pay back our schools and raise modest revenues that do not hurt middle class families. I will continue to advocate for these goals so that we can grow the middle class and set our state on stable financial ground into the future.
Please contact me with your questions, concerns and comments on these issues. I can be reached by phone at (651) 296-6612 or by email at rep.zachary.dorholt@house.mn.
Sincerely,
Zach Dorholt
State Representative