2016 tax bill provisions focus on working Minnesotans

This legislative session, we’ve made the case that policymakers should take the opportunity to invest in broader prosperity, including by supporting the work efforts of those Minnesotans who struggle to make ends meet and get ahead.

The tax bill passed by the Minnesota Legislature this weekend includes provisions that make everyday Minnesotans the priority, especially by strengthening the Working Family Tax Credit and Child and Dependent Care Credit. And importantly, it does not include large and poorly targeted proposed tax cuts that would have reversed the state’s recent progress toward a more equitable tax system and threaten the state’s ability to fund schools, health care and other critical services.

The bill, House File 848 authored by Senator Rod Skoe and Representative Greg Davids, includes a strong expansion of the Working Family Credit. Based on Senate File 2586 authored by Senator Ann Rest, the provision would provide $49 million in tax reductions to about 386,000 Minnesota families and individuals across the state by:

  • Increasing the size of the tax credit for most currently eligible families and individuals;
  • Making some additional families and individuals eligible by increasing the incomes that they can earn and still qualify for the credit; and
  • Reaching younger workers without dependent children by lowering the age requirement to qualify for the credit from 25 years old to 21.

The Working Family Credit provisions for workers without dependent children are truly nation-leading, and would support younger workers and others to be successful as they start their working lives. Minnesota is among the first states (after Washington, D.C.) to move forward with improving such credits for these working people, building on bipartisan (but stalled) efforts to make similar improvements at the federal level.

In addition to supporting work, the benefits of the Working Family Credit are myriad: it helps kids succeed, can narrow racial income disparities, and is focused on those income groups who on average pay the largest share of their incomes in Minnesota taxes. That’s why the Minnesota Budget Project led the effort, with critical involvement from diverse partners, to expand the Working Family Credit this year.

The tax bill also supports Minnesota’s working parents through a targeted expansion of the state’s Child and Dependent Care Credit. Governor Mark Dayton has long championed updating this credit as part of the solution to making child care affordable for more Minnesota families, and a version of it was included in the House’s 2015 omnibus tax bill, based on a bill from Representative Jenifer Loon. A $9.8 million expansion is included in the 2016 tax bill, which would:

  • Increase the maximum amount of credit that families can receive to $1,050 for families with one child and $2,100 for families with two or more children.
  • Increase the income that families can earn and still qualify for the credit to $44,900 for families with one child and $51,800 for families with two or more children.

The bill also includes additional funding for free tax preparation and related financial capability services, which means more Minnesotans will get the tax credits for which they qualify and can use their tax refunds to build savings and a stronger economic future.

What’s also important about the bill is what is not in it. One of the primary concerns we had with the House’s 2015 tax bill was its overall size. It included $1 billion in tax cuts and diversions of existing revenues in the current budget cycle, which used up all of the surplus and more, leaving nothing left to invest to expand opportunity in Minnesota. And it contained tax cuts that grew substantially over time, threatening to put the state back into deficits.

In contrast, the 2016 omnibus tax bill is $257 million for the remainder of FY 2016-17 and $544 million in the next two-year budget cycle (FY 2018-19). Those figures include both tax cuts and additional appropriations, including increased funding to cities, counties and other local governments and for economic development initiatives.

The 2016 tax bill also leaves out the largest and most poorly targeted proposals that were on the table. It does not cut the estate tax, which would benefit only a small number of the largest estates. It leaves out expensive proposals to exempt all Social Security income, which would have had no benefit for the state’s most struggling seniors and had a high price tag that would put the services that seniors rely on at risk.

We also raised concerns about the House’s proposal to eliminate the statewide property tax paid by businesses and cabins, which would ultimately cost about $1 billion a year when fully in effect and provide the largest tax cuts to the state’s highest valued properties. And we heard directly from small-business owners who said these kinds of tax cuts were not their priority.

The 2016 tax bill includes a significantly scaled back and more targeted proposal, which exempts all commercial-industrial properties from paying the tax on the first $100,000 of the property’s value. This proposal is $31 million for a partial year tax cut in FY 2017 and about $58 million per year starting in FY 2018.

This tax bill certainly isn’t perfect. But its expansions of the Working Family Credit and Child and Dependent Care Credit focus on Minnesota families and workers striving to get ahead, and represent an important commitment to expanding economic opportunity.

-Nan Madden

About Nan Madden

Nan Madden is director of the Minnesota Budget Project.
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