Senate DFL passes tax package

Minnesota Senate Democrats on Tuesday passed a $4 billion tax plan that includes one-time rebate checks; elimination of the state tax on Social Security benefits for the majority of Minnesotans; and new revenue by capturing overseas corporate income. 

The House passed its tax package last week, which was largely similar but had several differences — including creating a fifth income tax tier that would increase taxes on wealthy Minnesotans.

Senate Republicans promised to hold up a major infrastructure bill — which requires a legislative supermajority to authorize borrowing to pay for it — unless they won major concessions on the tax bill. They want more tax cuts and no tax increases, but Democrats have thus far ignored their pleas and are poised to pay for the infrastructure projects with cash.

The Senate passed the bill by a 34-33 vote, and now the two DFL tax proposals will go to a conference committee — comprising both Senate and House members — where lawmakers will craft a compromise.

Last week, DFL senators touted their plan’s tax cuts and the lack of tax increases for individual Minnesotans. Sen. Ann Rest, DFL-New Hope, said their plan as it stands has enough votes to pass the Senate.

“We will have 34 DFL votes for this bill,” said Rest, who also chairs the Senate Taxes Committee.

The bill includes one-time rebate checks of $279 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. There’s a hard ceiling on the payments, meaning Minnesotans who make $1 over the thresholds would be ineligible for any cash.

Both the Senate and House’s proposed rebate checks are much lower than what Gov. Tim Walz proposed during his reelection campaign and in his budget proposal earlier this year: $2,000 checks to Minnesota families and $1,000 checks for single filers along the same income thresholds.

The Senate also proposes $620 child tax credits that begin to phase out at $50,000 for married joint filers, up to three children per family.

Senate Democrats also proposed eliminating the state’s tax on Social Security benefits for more Minnesotans. Currently just over half of Minnesotans don’t pay state tax on their benefits, and the Senate DFL proposal 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.

On the floor, Sen. Rob Kupec, DFL-Moorhead, proposed an amendment that would have eliminated the state tax on Social Security benefits entirely.

The amendment included a 2.1% capital gains tax on investment income over $250,000. He said the new tax would have generated the necessary revenue to pay for ongoing state programs and offset the funding lost from a total Social Security tax elimination.

The amendment did not pass, but it will help Kupec and other swing-district Democrats make the case that they fought for full repeal of state tax on Social Security benefits, while Republicans voted against it.

Rest argued last week the state needs a tax increase to pay for the DFL’s ambitious spending priorities. Both the House and Senate are proposing a tax increase for large, multinational corporations through what’s called worldwide combined reporting — meaning corporations would be required to declare all global profits on their Minnesota tax returns.

Worldwide combined reporting targets companies that 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.

Before the floor debate on Tuesday, GOP Senators held a press conference and protested the lack of a full Social Security tax elimination, and the amount of total tax relief proposed amid a $17.5 billion budget surplus.

“The top line for this bill is simply that it’s going to be hard on our state and our state economy,” said Senate Minority Leader Mark Johnson, R-East Grand Forks.

Johnson said DFL senators have not worked across the aisle. He said he offered Senate Majority Leader Kari Dziedzic, DFL-Minneapolis, a deal: GOP senators will vote for a bonding bill to fund over $2 billion in infrastructure projects (GOP senators killed this proposal in March), if the DFL increases funding for nursing homes, scratches the corporate worldwide reporting tax proposal and completely phases out the tax on Social Security benefits beginning in fiscal year 2028.

He said he hasn’t received a response from Dziedzic or her team.

“There’s no bipartisan work going across the aisle on this … I am extremely disappointed,” Johnson said. “We want to make sure that Minnesotans are successful — not one party.”