Dear Neighbor,
The first week of the 2018 legislative session is coming to a close.
One major topic of the week was tax conformity. As a member of the House Tax Committee, I attended two hearings on this subject. The passage of the federal tax bill late last year creates some major state tax issues. Minnesota is what is called a conformity state, in that to make state taxes as simple as possible, we calculate our state income tax by calculating our federal taxable income, adding back the amount of state income tax paid (plus a few other adjustments for some taxpayers), and then calculate our state income tax based on that adjusted federal income. Many other states actually have you calculate your state taxable income in a significantly different way than your federal taxable income.
However, under the new federal tax law, federal taxable income is going up in many cases even though federal income taxes that will be paid are going down for most people. This is because while federal tax rates are going down, and federal tax credits like the child tax credit are going up, there are many federal deductions like the personal exemption that are being eliminated. The net effect at the federal level will be lower federal taxes for most people even though they will have higher federal taxable income. However, if we just conform to the federal tax changes without reducing our own tax rates or making other changes, many people’s state income taxes will go up because their federal taxable income will be higher.
I certainly don't want to have people’s state income taxes increase, but I also don’t want to make them more complex to calculate by having people use a different federal taxable income amount than what they will now be using, so figuring out how to change our tax code so people don't pay higher taxes while trying to keep it simpler and conforming to federal changes will be one of the big issues of the session.
One accomplishment of note this weeks is that on Thursday both the House and Senate approved a bill to finally put to rest the issue of the governor vetoing the Legislature’s operational funding from the state budget last year. The governor has indicated that he will enact the bill we approved and, once that happens, we can all move along to the great many other issues we’d rather be discussing. The bill that we passed spends exactly the same amount of money as what the governor had previously vetoed.
I will do my best to keep you abreast of developments over the course of this session. In addition to my emails, there also are some links available to help you stay in the loop on what is happening in St. Paul. Here are some I hope you find helpful:
Look for more news soon and, as always, your correspondence is welcome on whatever issues are most important to you.
Sincerely,
Jim