Governor Dayton’s 2016 tax proposal focuses on everyday Minnesotans through Working Family Credit, Child & Dependent Care Credit

In the tax portion of his supplemental budget proposal released today, Governor Mark Dayton continues to prioritize sustainable tax choices that move Minnesota toward a tax system that is more equitable across income levels. It is especially focused on supporting the work efforts of middle-class Minnesotans and those working their way into the middle class through expansions of the Working Family Credit and the Child and Dependent Care Tax Credit.

Too many Minnesota families struggle with tight family budgets that make it hard to pay for child care, education and skills training, reliable transportation and other things they need to succeed and get ahead in the workforce. And these lower-income households on average pay a larger share of their incomes in Minnesota taxes than those with the highest incomes.

In the face of these challenges, the Working Family Credit encourages and supports work, makes Minnesota taxes fairer, helps working people across the state to better make ends meet, and gets children off to a stronger start in life. It reaches Minnesotans all across the state: 48 percent of households receiving the credit live in Greater Minnesota and 52 percent live in the 7-county metro area.

Dayton’s 2016 budget proposal boosts the Working Family Credit by $39 million in FY 2017 by:

  • Increasing the amount Minnesotans can earn and still receive the credit. For example, the income limit for a married couple with two children would be increased to $55,000. An estimated 24,000 Minnesota families would become eligible for the credit as a result.
  • Increasing the size of the Working Family Credit that most currently eligible households can receive; more than 286,000 households would benefit by an average of $138.

Expanding the Working Family Credit should be a top priority for tax policymakers this year. Momentum on the Working Family Credit has also been seen in the Senate, where on Monday Senator Ann Rest has introduced Senate File 2586. This bill is similar to the governor’s proposal, as it increases the size of Working Family Credit for most currently eligible families and increases the maximum income that families can earn and still qualify for the credit.

Senate File 2586 goes a step further than the Dayton proposal by including essential improvements for Minnesota workers without dependent children, who today pay above-average shares of their incomes for Minnesota taxes. It provides a stronger increase in the Working Family Credit for these workers and allows independent workers ages 21 to 24 to qualify.

In his budget, Dayton also proposes a $47 million expansion of the Child and Dependent Care Tax Credit in FY 2017. This credit is overdue for an update, as it hasn’t kept up with the rising costs of child care – one of the largest expenses that families with children may face. Dayton’s proposal would increase the maximum amount of credit families can qualify for, and increase the income to qualify up to $112,000 for families with one child and $124,000 for families with two children. The House 2015 tax bill includes a version of this proposal more targeted to moderate-income families, so policymakers should be able to reach agreement on some improvements to the Dependent Care Credit this year.

The governor’s tax proposal also includes a package of initiatives to close tax loopholes used by a relatively small number of corporations, and thereby create a more level playing field for all business taxpayers. And it includes a set of federal conformity provisions, which update Minnesota’s tax code for changes in federal tax law and keeps things simpler for taxpayers.

In his recent public statements, Dayton has emphasized that Minnesota has only fairly recently come back into fiscal balance, and reminds us that our past experience with large tax cuts were followed by years of large and painful deficits.

His supplemental budget reflects an appropriate sense of caution. It doesn’t go too far on tax cutting: it makes $117 million in net tax reductions in FY 2016-17 and $154 million in FY 2018-19, and provides a one-time $47 million boost in FY 2017 in local aids to cities and counties. Because the tax cuts are reasonable in size, that allows the governor to make additional investments in broader economic opportunity elsewhere in the budget.

It is a time for budgetary caution, but there is also urgency to expand the state’s economic prosperity to those it hasn’t yet reached. Dayton’s tax proposal finds the right balance between these two priorities.

-Nan Madden

About Nan Madden

Nan Madden is director of the Minnesota Budget Project.
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2 Responses to Governor Dayton’s 2016 tax proposal focuses on everyday Minnesotans through Working Family Credit, Child & Dependent Care Credit

  1. Nan Madden says:

    Governor Dayton’s proposal would continue the current situation for Social Security. Social Security benefits are exempt from the income tax for the lowest-income seniors, and partially exempt for all others.

    For example, for a single retiree receiving $15,000 in Social Security and with $10,000 of other taxable retirement and wage income, all of their Social Security is exempt from tax.

    I find this publication from House Research helpful in describing the income levels that determine whether Social Security benefits are considered taxable income: http://www.house.leg.state.mn.us/hrd/issinfo/sstaxes.aspx?src=20.

  2. Jannette Sachs says:

    If Governor Dayton is trying to make things more fair, then why is he taxing social security benefits? My social security is not much more than the current minimum wage. If he increases the minimum wage to $15 then I will be living on about half that.

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