House tax bill focuses upon fairness, filing ease, cuts and credits

Leveling the playing field was a goal cited repeatedly when House DFL leadership presented its omnibus tax bill on Monday morning.

The bill aims to raise $1.2 billion by closing corporate tax loopholes, returning $100 million to homeowners, renters and farmers in the form of tax refunds and credits. The bill would also provide $73 million in new aid for local and county governments.

As amended, HF2125, sponsored by Rep. Paul Marquart (DFL-Dilworth), is scheduled to be presented at Tuesday’s House Taxes Committee meeting, with additional amendments taken up on Wednesday. Marquart and others touted during a press briefing that, under the bill:

• two-thirds of tax filers would receive a tax cut;
• the number of filers receiving the working family tax credit would increase to 380,000 (at an average credit of $100 each); and
• 56 percent of senior citizens would receive tax cuts on their Social Security benefits.

The topic of tax conformity has been on the taxes committee agenda frequently since the federal Tax Cuts and Jobs Act became law in 2017. HF2125 conforms in some areas, but doesn’t in others.

“One of the main provisions of this bill is to match the federal standard deduction,” Marquart said. “We roll the personal exemptions into the current standard deduction of $24,400. That’s going to make it a lot easier to navigate a complex tax system. The data we have says that 93 percent of Minnesota taxpayers will file the standard deduction.

“A big difference between this and the federal tax bill is we continue with the dependent exemptions with a family size adjustment. For example, a family of four will have a zero tax bracket of $32,900 through the standard deduction and the family exemptions. That will make it the third-largest zero tax bracket in the nation.

“Another big benefit is significant tax cuts for farmers and small businesses,” Marquart added. “We’re increasing the agricultural school bond credit from 40 percent to 70 percent. That’s a $30 million property tax cut for farmers, besides helping out rural schools. And when you add the Section 179 depreciation exemption and the angel investment credit, this is $280 million in investments in our farmers and small businesses.”

Rep. Diane Loeffler (DFL-Mpls), chair of the House Property and Local Tax Division, addressed how property tax policy will change under the bill.

“Property taxes have been increasing significantly in recent years, and this bill takes a variety of steps to address that and housing affordability,” Loeffler said. “It invests $100 million in direct property tax assistance to taxpayers, and $73 million in increased aid to our city and county governments. In the past four years, homeowners have seen a 20 percent increase in their property taxes, and rental property taxes have gone up 28 percent statewide. Our bill increases eligibility for the amounts received under the homestead and renter tax credit refund programs.”

Under another change outlined in the bill, military veterans and surviving spouses would benefit from expanded credits and exclusions.

While recent budget forecasts show a positive balance for the current fiscal year, Marquart pointed out that’s expected to change.

“We have a budget deficit going into the future,” he said, “which means that – if we spend even just one dollar – we need to find resources to cover it. That’s what this bill does, provides those needed resources. … One of the biggest things we do is create a tax system that is more fair and levels the playing field for our farmers, senior citizens, working families and small businesses. We do that by looking at tax avoidance, bringing money from overseas that Minnesota corporations have stashed in tax havens and bringing those dollars back to Minnesota.”

In addition to the $745 million in revenue for the 2020-21 biennium from closing corporate tax loopholes, Marquart said, “There is a 3 percent tax on capital gains sales over $500,000, exempting agriculture.”

Marquart liked the bill’s chances in negotiations with the majority Republicans in the Senate.

“If you take all the revenues in the DFL budget, 96 percent of those revenues were already approved by last year’s Republican majority. So we’re talking about a 4 percent increase.”

Investments in education

Three-fourths of the new tax revenue would be used to increase funding for schools. Given that, DFL lawmakers took the opportunity to highlight their education plan.

“All Minnesota children deserve a world-class education, but years of Republican trickle-down economics and tax cuts for corporations and the wealthy have left our schools underfunded,” House Speaker Rep. Melissa Hortman (DFL-Brooklyn Park) said.

“Without stronger state funding,” she added, “class sizes will continue to increase, teachers will continue to be laid off and our school districts will have no choice but to go to local property tax payers just to fund the basics.”

The proposal would increase E-12 funding by $900 million in the 2020-21 biennium, and invest an additional $300 million in higher education to freeze tuition. 

The omnibus education finance bill includes the following 2020-21 biennium appropriations:

• $521 million to increase the K-12 per pupil funding by 3 percent in Fiscal Year 2020 and 2 percent in Fiscal Year 2021;
• $118 in special education funding;
• $47 million to preserve 4,000 pre-K program seats that are set to expire; and
• $3 million in initiatives to increase the percentage of teachers of color statewide.

The additional education funding would be raised largely through deemed repatriation and changes to the global intangible low-taxed income.

“We can’t have this for free,” House Majority Leader Rep. Ryan Winkler (DFL-Golden Valley) said. “If we want a world-class education system that provides opportunity for all kids, we have to pay for it.”

Session Daily writer Rachel Kats contributed to this story