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Committee offers hopeful talk about tax relief on Social Security payments

Rep. Dale Lueck offers a comment Jan. 18 to the House Taxes Committee about a bill he sponsors, HF9, which would phase out the state tax on Social Security benefits. Rep. Kathy Lohmer, right, sponsors a similar bill, HF213. Photo by Paul Battaglia
Rep. Dale Lueck offers a comment Jan. 18 to the House Taxes Committee about a bill he sponsors, HF9, which would phase out the state tax on Social Security benefits. Rep. Kathy Lohmer, right, sponsors a similar bill, HF213. Photo by Paul Battaglia

Providing seniors with relief from having their Social Security payments taxed by the state is a bipartisan concern. But with an increasing number of people reaching retirement age, the question is how to generate enough revenue to fill the void it would create in the General Fund so as to no impact state services.

Two bills phasing in a Social Security tax exemption were held over Wednesday by the House Taxes Committee for possible omnibus bill inclusion.

According to the nonpartisan House Research Department, Social Security benefits are now exempt from federal and state taxation for individual filers with income under $25,000, or $32,000 for married couples filing jointly. The percentage increases with higher incomes.

Rep. Dale Lueck (R-Aitkin) sponsors HF9 that would allow taxpayers to subtract from state taxes 20 percent of their Social Security benefits in tax year 2017. The percentage would increase in 20 percent increments in each of the next five years, culminating with 100 percent of benefits subtracted by 2021. The companion, SF19, sponsored by Sen. Carrie Ruud (R-Breezy Point), has been referred to the Senate Taxes Committee.

Lueck said seniors face rising costs while their income is stagnate at best. “Some are sittin’ there hoping that someone will give them a ride to church because they can’t afford the gas.”

He said that while the Legislature continues to debate the issue year after year, “there’s a whole nother crop of them that are going to die before we actually provide any relief. The clock is tickin’ for that particular group of our population. This is one situation where we can have a direct and immediate impact.”

Rep. Kathy Lohmer (R-Stillwater) sponsors HF213 to increase the subtraction by 10 percent annually beginning with 2017 taxes and go until 2026 when the tax would be completely phased out. Her bill has no Senate companion.

The fiscal cost of the bills, when phased out, would mean about $500 million less to state coffers annually. That’s a concern to Nan Madden, director of the Minnesota Budget Project. 

“The high cost of the bill will crowd out other priorities including services that seniors use,” she said. Noting that lower income seniors are not taxed now, she prefers to see a more targeted approach to limiting taxes on Social Security payments. “We think it is risky to commit the state to future tax cuts, as we don’t know what the state’s financial future will be in the next five to 10 years.”

Rep. Paul Marquart (DFL-Dilworth) would like to see some Social Security tax relief, but agrees with Madden. He cautioned the committee not to raise expectations on a complete phase-out of the tax and suggested raising the financial threshold to determine who would qualify for the tax exemption.

“Tax cuts are a balancing act – and fairness is a constant concern,” he said.


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