Raise the standard deduction? Cut all income tax rates? Debate is on in House Taxes Committee

What’s the best way to use tax policy to put more money in the pockets of more Minnesotans? That question was the crux of a vigorous debate in the House Taxes Committee Wednesday.

The committee held over three bills about income taxes for possible inclusion in the omnibus tax bill, but it became clear that the proposed cuts in income tax rates in HF174, sponsored by Rep. Jon Koznick (R-Lakeville), and, especially, HF42, sponsored by Rep. Jerry Hertaus (R-Greenfield), would almost certainly not survive final tax bill negotiations intact.

Rep. Jon Koznick

HF174 would lower rates by 0.125 percent for all income levels. Revenue Department projections hold that 2.34 million tax returns would be affected, with an average tax reduction of $94. It would also reduce state revenue by $328.8 million in Fiscal Year 2020. The bill’s companion, SF1066, sponsored by Sen. Justin Eichorn (R-Grand Rapids), awaits action by the Senate Taxes Committee.

It was HF42 that truly laid bare dissenting philosophies of taxation.

The bill, which has no Senate companion, would reduce income tax rates by 1 percent at all income levels. While the Revenue Department said that 2.38 million tax returns would be affected, with an average reduction of $719, the change would also reduce state revenue by about $2.6 billion in Fiscal Year 2020.

“If we spend all the money on tax cuts,” said Rep. Jamie Becker-Finn (DFL-Roseville), “then we won’t have the funds to pay for the training programs for the trades or the funds to pay for programs for our seniors and our aging population. The greatest amounts, under these proposals, go to those who make $250,000 or more.”

Nan Madden, director of the Minnesota Budget Project, agreed, citing an analysis of the two bills by the nonpartisan Washington, D.C.-based Institute on Taxation and Economic Policy. It indicated about 20 percent of the benefits from the proposed tax cuts would go to the 1 percent of Minnesotans with the highest incomes.

But Rep. Greg Davids (R-Preston) put things in perspective at the hearing’s end.

“Today’s bills we heard spend over $5 billion,” said Davids, the committee’s Republican lead. “We probably won’t get 10 percent of that. So it’s kind of like trying to suck a watermelon through a garden hose.”

A third bill had little debate: HF886, sponsored by Rep. John Huot (DFL-Rosemount), aims to simplify the filing process by raising the state’s standard deduction by $1,000 for individuals, $2,000 for those married filing jointly and $1,450 for those filing as a “head of household.” It has no Senate companion.

The Department of Revenue estimates that about 1.8 million tax returns would be affected, with an average tax reduction of $86. State revenue would be reduced by $238.8 million as a result.

Huot said half of those people with incomes under $50,000 would receive tax cuts and 90 percent of those making under $150,000 would have lower taxes. “About two-thirds of Minnesotans claim the standard deduction,” he said.