In an earlier blog entry, I noted that we hadn’t seen much in the way of ambitious tax reform proposals this year. That changed yesterday when the House Property Tax Division unveiled an updated version of their “super-charged property tax refund” proposal. This proposal seeks to address the regressivity of Minnesota’s tax system, which has been increasing in part because of a growing reliance on property taxes.
The new Homestead Credit State Refund would base the property tax more on ability to pay. Homeowners would be eligible for the Refund if their property taxes exceed 2% of household income. Homeowners can qualify if their household income is $200,000 or less, which covers an estimated 95% of homeowners.
Last year’s Homestead Credit State Refund proposal was funded through an increase in income taxes on the state’s highest-income households. In contrast, this year’s proposal is “revenue neutral” – that is, it takes existing resources that reduce property taxes and spends those dollars in a different way. The proposal would combine the dollars that go to the current Homeowner Property Tax Refund (aka the Circuit Breaker), the Market Value Homestead Credit and the itemized deduction for property taxes, and replace these three provisions of law with the new Homestead Credit State Refund.
While we’ll be looking for more details to be sure that the proposal reaches its tax fairness goals – we’ll be looking in particular for any unintended consequences for the lowest-income taxpayers – this proposal looks like a welcome attempt to reform the state’s property tax system and have a real impact on tax fairness overall. It aims to target the largest tax reductions to those with the greatest need, yet provide some reduction in property taxes to the majority of homeowners. And because it is a tax credit paid directly to homeowners, it does not harm the ability of local governments to fund services.
But perhaps most importantly, the proposal reminds us that tax reform is both needed and possible.