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How deep is your tax cut? Conference committee starts talking

House and Senate tax chairs, Rep. Paul Marquart, left, and Sen. Carla Nelson, right, during the walk-through from nonpartisan staff of HF3669/SF3669*, the omnibus tax bill, during a May 16 conference committee meeting. (Screenshot)

Have the House and Senate cut a deal on tax cuts? Well, the two sides have evidently compromised on the parameters around the total size of a cut, but details are still to be hashed out by a taxes conference committee that met for the first time Monday evening.

Led by the tax committee chairs in each chamber, Rep. Paul Marquart (DFL-Dilworth) and Sen. Carla Nelson (R-Rochester), the conferees received a walk-through from nonpartisan staff of HF3669/SF3669*, and began discussing where they may find common ground.

“I see a lot of tax committee experience in this room, and I think that will matter in putting together something that will make a real and meaningful difference in people's lives,” Marquart said. “We have two strong bills with strong priorities. By putting those together, we’re going to make an even better bill.”

Added Nelson: “I know we share the same priorities as far as empowering Minnesotans, sparking economic growth, and seeing our state prosper. We’re going to work fast, but we’re going to be very careful, respectful and thoughtful.”

If a comparison of the House and Senate omnibus tax bills were to come down to “My tax cut’s bigger than your tax cut,” then the Senate bill clearly does more cutting.

According to the Department of Revenue, the changes in tax policy contained on the Senate side would come to $3.4 billion for the current biennium and $5.2 billion for the next. Meanwhile, the House bill calls for $1.6 billion in cuts in both this biennium and the next.

So that adds up to $8.6 billion in tax cuts in the Senate bill and $3.2 billion in the House. However, Gov. Tim Walz and legislative leadership announced early Monday morning that they’d agreed on shooting for a $4 billion tax bill that includes $1.6 billion in tax cuts for fiscal year 2023 and $2.4 billion in cuts for the next biennium. So that would mean a compromise bill would be closer to the House version in size.

The changes in policy fall primarily into three categories: individual income tax, corporate franchise tax, and sales and use taxes. Here’s how the tax cuts in the two bills break down for fiscal year 2023:

  • income tax cuts: $1.3 billion in the House, $3.4 billion in the Senate;
  • corporate franchise tax cuts: $67.7 million in the House, $35.4 million in the Senate; and
  • sales and use tax cuts: $122.2 million in the House, $10.5 million in the Senate.

The Senate bill also contains a $4.9 million reduction in the statewide property tax levy and a $1.1 million cut in estate taxes, while the House bill contains a shift of $3.1 million from the Environmental Trust Fund to the General Fund.

[MORE: View a spreadsheet comparing the bills and the governor’s tax proposals]

 

When it comes to income taxes, 2.8% means $2.8 billion

As it stands, the big difference between the bills is the Senate focus upon lowering the rate on the lowest income tax tier from 5.35% to 2.8%. The Department of Revenue estimates that would reduce state revenue by $2.8 billion in fiscal year 2023 and $4 billion in the next biennium.

The other big change in the Senate bill would be eliminating all income taxes on Social Security benefits. It’s estimated that would lower the state’s General Fund by $509.6 million in the current biennium.

The House has no such provisions, instead focusing upon targeted tax cuts. For example, the House bill policies that would produce the largest income tax cuts in fiscal year 2023 would be:

  • a refundable renters income tax credit, $372.6 million;
  • a rebate for families with children under age 17, $308 million;
  • an increase in the child and dependent care tax credit, $182.3 million;
  • an unemployment insurance subtraction, $160.9 million; and
  • a modified Social Security subtraction, $114.2 million.

The House bill would also increase local government aid by $137 million in the current biennium, including $50 million in county pandemic business aid; $40 million for community career workforce academies; $25 million for county pandemic rental assistance; and $22 million for Soil and Water Conservation district aid. The Senate bill calls for a $139,000 total increase.

As for policy differences between the two bills, you can find what’s different, the same and similar here.


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