Generally, the tax committees don’t pass individual tax bills during the legislative session, but rather hear a whole lot of options and then combine them into one “omnibus” tax bill. We’ll see the first draft of the House omnibus tax bill on Monday, April 20. The budget targets set by the House indicate that the omnibus tax bill will raise a net of $1.5 billion for FY 2010-11.
Recently the House Tax Committee has begun hearing some bills with ideas about how to raise some of that $1.5 billion. Two of them are a new twist on ideas that have been around a while (and that have been discussed in our Revenue-Raising Options to Help Close Minnesota’s Budget Deficit).
On April 14, Representative Rukavina presented HF 2079, which is a new version of the income tax surcharge (or surtax) idea used in the 1980s under Governor Quie. When a surcharge is in place, income tax rates and deductions all stay the same. However, once the income tax has been calculated, an additional amount is added. Under HF 2079, this surcharge varies by income, ranging from 6% to 12%. Households with adjusted gross income under $30,000 would pay 6%, incomes $30,000 to $80,000 would pay 8%, $80,000 to $250,000 would pay 10%, and incomes over $250,000 would pay 12%. The bill is estimated to raise $1.4 billion in FY 2010-11, roughly the same as if all income levels paid a 10% surcharge.
Surcharges are often considered temporary measures, and in HF 2079, the surcharge would end once the state has a fund balance of $700 million.
Last Monday, the committee heard Representative Paymar’s bill, HF 1998, which combines two ideas: creating a new income tax bracket and returning income tax rates to where they were in the late 1990s. In recent years, an additional income tax bracket has been discussed as a way to address the finding that the highest-income Minnesotans pay a smaller share of their incomes in total state and local taxes. In tax committee short-hand, this proposal is called a “4th tier” because it creates a new bracket above the existing three tax brackets, and both the House and Senate passed versions of one in 2007.
Representative Paymar’s bill creates a new tax bracket in the middle, rather than on the top. The bill splits the current second tax bracket into two. Currently, this bracket taxes adjustable gross income between $33,221 and $131,970 at a 7.05% rate (those income levels are for married couples filing jointly.) The bill would create a new bracket for incomes $100,000 to $131,970, and tax that income at 8%, which is the income tax rate that applied to the second bracket in 1998. The bill also would increase the tax rate on the top bracket from 7.85% to 8.5% – again, returning the rate to where it was in 1998. This proposal would raise $440 million in the FY 2010-11 biennium.
That’s two additional ideas added to the mix…we’ll see if they make it to the next stage when the House omnibus tax bill comes out on Monday.