Is Minnesota on the road to recovery? It certainly was at the conclusion of the 2013 fiscal year, according to numbers released by the state's Office of Management and Budget (MMB) in October.
REPUBLICAN 2012-2013 BUDGET GENERATED SURPLUS
Certified results reported by MMB show the two-year Republican budget (passed in May 2011) generated $3.4 billion in new revenue (taxes), i.e., revenue beyond budgeted expenditures, without tax hikes! During those two years, Republicans held majorities in both the House and Senate. Compare this with the budget of May 2013 passed by DFL majorities and signed into law by Gov. Mark Dayton. It will require $2.3 billion in new taxes and grow spending faster than the economic expansion. Deficits may be ahead in 2014-2017. Already, just three months into the new fiscal year starting July 1, 2013, tax revenues are $2 million less than projected.
FEW WILL ESCAPE NEW TAXES
Gov. Mark Dayton said his new taxes would only affect the rich, but a closer look reveals that few Minnesotans will escape the effects of the Tax Bill of 2013. The latest fall-out concerns $300 million in increased taxes for Minnesotans because the DFL majority refused to conform to federal tax codes, and many tax deductions will disappear. In most of the last 25 years, the state had matched the federal changes.
THE MOST PEOPLE
Marriage Penalty: Marriage penalties occur when a family filing jointly enters a higher tax income bracket than if they had filed separately. An estimated 650,000 Minnesota families will pay on average $120 more per year in taxes because Democrats rejected an amendment to lift this burden.
Foreclosure Tax: Federally, you are not taxed on the principle sale amount of a home in foreclosure, but any taxpayer who had this type of debt forgiven in the past now must pay the full amount in Minnesota.
Homeowner Tax: Minnesota families were allowed to deduct the cost of home mortgage insurance premiums on their federal return but now must pay the full amount on their state tax return.
Adoption Assistance Tax Credit: If you are adopting a child, you had been able to exclude up to $12,970 in employer-provided adoption benefits. Now, there will be no state credit for adopting a child.
Commuter Tax: Workers may exclude up to $240 a month in employer-provided transit or parking benefits on their federal taxes. That amount at the state level is only $125, leaving a gap of more than $1,300 per employee.
Education Assistance: Minnesota did not fully adopt the federal exclusion for employer-provided education assistance. Many Minnesotans will now have to report this as income on their state filings.
STUDENTS AND EDUCATORS
Child Care Tax: On a federal tax return, families can deduct $3,000 for the first child and $6,000 for two or more children for child care expenses. However in Minnesota those amounts are $2,400 for one and $4,800 for two or more children.
Tuition Taxes: Those who claim an above-the-line deduction for tuition and fees on federal forms will need to add that amount back onto their income on state filings.
Teacher Expense Tax: Teachers can no longer deduct the first $250 in out-of-pocket expenses for classroom supplies on their state returns.
Scholarship Tax: Awards received from a number of national scholarship and financial assistance programs may be deducted from your income on federal returns. Now these awards – including some for military veterans – will be taxed by Minnesota and must be included as income on state forms.
Education Savings Tax: This is particularly bad faith on the part of the DFL - folks who had set up a federal Coverdell Education Savings Account could deduct distributions from the account. Now, Minnesota taxpayers must add these distributions to their income if used for K-12 education expenses.
Student Loan Tax: Several federal provisions allow deductions for student loan interest. Minnesota taxpayers will not be able to deduct this interest when it’s paid either voluntarily or after the first 60 months that interest payments are required on the loan.
RITCHIE EXCEEDS HIS AUTHORITY (AGAIN)
A unilateral initiative providing online voter registration was recently announced by Secretary of State Mark Ritchie. This step taken by Ritchie had no legislative examination during the legislative session nor any oversight by the governor. The nonpartisan legislative auditor, James Nobles, conducted a full review at Republicans' request, and indicated he shares their concerns. There is concern the new system exceeds the authority of Ritchie’s office, lacks legislative oversight and could subject Minnesotans to unwanted data security risks such as identity theft. Voter registration deserves transparency and this initiative should be subject to the full legislative process. Click here for more on this topic in a St. Cloud Times editorial.
I will keep you posted as these and other issues develop.