Here are some of the differences between the Senate and House DFL tax plans

By: - April 26, 2023 10:12 pm

Senate Tax Committee chair Ann Rest, DFL- New Hope (right), and Sen. Matt Klein, DFL-Mendota Heights (left), talked about the Senate omnibus tax bill at the Capitol on Wednesday April 26, 2023. Photo by Michelle Griffith/Minnesota Reformer.

Senate Democrats released their tax package on Wednesday, touting zero tax increases on individual Minnesotans, local sales tax hikes requested by cities and counties and billions in tax relief, which they say will benefit Minnesota families and seniors.

The release of the Senate DFL’s tax plan brings lawmakers one step closer toward sending tax rebate checks to Minnesotans — after over two years of advocacy from DFL Gov. Tim Walz. The House DFL’s tax package is scheduled to be debated on the floor Thursday and the Senate will likely debate their bill on Monday.

Although the total spending on tax cuts, credits and rebate checks are similar, the Senate Taxes Committee is generally less focused on income redistribution than its House counterpart and would take a different path on some key issues. 

That means once the bills pass their respective chambers, they’ll likely have to form a conference committee — comprising members of both the House and Senate — to craft a compromise.

Here are some of the differences between the Senate and House DFL tax packages:

Slightly different, though small Walz checks

The Senate DFL’s tax bill includes one-time rebate checks for Minnesotans that are only a few dollars higher than the House bill: $279 checks for single filers making less than $75,000 and $558 for married filers making less than $150,000 annually. Taxpayers with children would receive an additional $56 per child, up to three children.

The House proposed checks that were $4 less for singles and $8 less for married couples. 

Both of these proposals are much lower than what Walz proposed: $2,000 checks to Minnesota families and $1,000 checks for single filers along the same income thresholds.

There’s a hard ceiling on the payments, meaning Minnesotans who make $1 over the thresholds wouldn’t be eligible for any cash. 

The Senate also proposes $620 child tax credits — approximately half of what the House offered. The House also has no cap on the number of children, whereas the Senate program only pays for the first three children. The Senate credit begins to phase out at a $50,000 annual income for married joint filers, whereas the House phaseout starts at $35,000.

Different revenue generators

Lawmakers have acknowledged the majority of the state’s $17.5 billion budget surplus is one-time money, and Democrats are proposing tax hikes to pay for increasing costs of ongoing programs.

The House’s solution is to create a fifth state income tax tier, which would establish a 10.85% tax rate on a Minnesotan’s taxable income above $1 million for married joint filers and $600,000 for single filers. 

The Senate has no fifth tier.

“There are no new tax increases on any individual in the state of Minnesota. Not one,” said Sen. Ann Rest, DFL-New Hope, and chair of the Senate Taxes Committee. “Not an income tax increase, not a state sales tax increase, not a single one.”

The Senate’s package does propose, however, a tax increase for large, multinational corporations. 

The Senate is proposing combined worldwide reporting for companies, meaning corporations would be required to declare all global profits on their Minnesota tax returns. Many large conglomerates have subsidiaries in other countries that generate revenue for them. 

Combined worldwide reporting targets companies who “shelter” their profits in other countries in an attempt to avoid paying U.S. federal and state taxes.

Minnesota currently uses a formula to determine how much a corporation owes the state in taxes. It’s based on a company’s Minnesota sales in proportion to U.S. sales. Requiring a company to report global sales may require a company to pay more taxes; however, it may also give companies tax breaks if their overseas subsidiaries lost money.

Rep. Frank Hornstein, DFL-Minneapolis, authored a bill earlier this month requiring combined worldwide reporting. He said it was a way to tax small businesses and large corporations alike.

Rest said the Senate DFL is opting to generate revenue through combined worldwide reporting to provide as much relief to Minnesotans as possible.

“We wanted that tax increase the furthest away from individual Minnesotans,” Rest said. “We’re committed not to (raise) any new taxes on Minnesotans in order to … bring this tax relief. I think this is a very worthy goal, and one we should maintain our commitment to.

Inclusion of local sales tax hikes

The Senate also has a number of proposals the House omits — 36 local sales tax requests.

Democrats and Republicans have asked for sales tax hikes in their districts to pay for new jails, road repairs and park improvements. Approving requests from cities and counties to put sales tax hikes to voters — they must be approved by the Legislature and then local voters — are generally non-controversial and politically easy because they don’t cost the state money and voters ultimately decide to accept or reject them.

House Taxes Chair Rep. Aisha Gomez, DFL-Minneapolis, however, declined to include any local sales tax increase proposals in the House bill. She argued the sales hikes aren’t applied equally to all residents, and hurt low-income Minnesotans.

“I personally feel that somebody’s ability to have access to good public services shouldn’t depend on whether they have a mall in their community or a big retail base,” Gomez said at a press conference earlier this month. “Public goods should be available to all regardless of their geography.”

Rest said she included local sales tax requests because the municipalities have abided by the law and local residents should make the decision, not lawmakers in St. Paul.

“(Gomez) didn’t hear any of them because she doesn’t like them … The Senate is not going to pick and choose,” Rest said. “We’re not going to decide for the people of Golden Valley, and we don’t want the House members to decide either.”

The Senate also proposed increasing local and county government aid programs by $40 million each for the next four years. The House proposed a $100 million increase each, and then tying the formula to inflation. 

The state aid helps cities keep property taxes low.

Identical Social Security tax exemption

Senate and House Democrats are united in their plan to eliminate the state’s tax on Social Security benefits for more Minnesotans.

Currently over 50% of Minnesotans don’t pay state tax on their benefits, and the House and Senate DFL proposals would increase it to 76%.

Married joint filers with an adjusted gross income under $100,000 could exempt all their benefits from the state’s tax on Social Security, and the same goes for single filers who make under $78,000.

Multiple Democrats, including Sen. Aric Putnam, DFL-St. Cloud, campaigned on and sponsored bills that would have eliminated the tax on Social Security.

When asked whether the partial elimination would scare away DFL votes, Rest said that wouldn’t happen.

“We will have 34 DFL votes for this bill. This bill that I presented today,” Rest said.

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Michelle Griffith
Michelle Griffith

Michelle Griffith covers Minnesota politics and policy for the Reformer, with a focus on marginalized communities. Most recently she was a reporter with The Forum of Fargo-Moorhead in North Dakota where she covered state and local government and Indigenous issues.