MINNEAPOLIS — Seniors would no longer pay taxes on social security income, millions of Minnesotans could see a small income tax cut and tens of thousands of families and renters across the state would be eligible for more tax credits under a sweeping deal struck Saturday at the divided Capitol.
Top legislative negotiators heralded the $4 billion package as transformational for Minnesotans after two years of battling the COVID-19 pandemic and as costs go up in almost every aspect of their lives.
"We have in this bill the largest tax cuts in the history of the state," said state Rep. Paul Marquart, DFL-Dilworth, chair of the House tax committee. "It's going to positively impact — in a real and meaningful way — families, senior citizens and businesses across the state."
The tax agreement is one of the first major deals to materialize at the Capitol as legislators face a Sunday night deadline to pass bills for the year. But its fate is tied to a comprehensive deal that includes an additional $4 billion in proposed spending on classrooms, public safety and health care, which legislative negotiators continue to spar over with time running out.
"It is our duty to get these resources back in the hands of Minnesotans to help them better afford their lives during this time of skyrocketing inflation," said Senate Taxes Chair Carla Nelson, a Republican. "We must not let this transforming, historic tax bill be held hostage by many of these other things."
Both parties made tax cuts a priority this session with a nearly $9.3 billion projected budget surplus on the bottom line, but they started the session in January with widely diverging priorities.
In the final deal, Republicans in control of the Senate secured the elimination of state taxes on social security income, a top priority they've been pushing at the Capitol for decades. They estimate the change will effect 460,000 seniors in Minnesota.
Republicans also pitched cutting the first tier income tax rate from 5.35 to 2.8%, amounting to roughly $1,000 in savings each year for a family making $100,000. The final deal permanently cuts that rate to 5.1%, a much smaller reduction than they originally proposed.
In exchange, House Democrats got their top priority to morph an income tax refund into a credit and boost eligibility by an estimated 125,000 filers. Overall, Democrats say there is more than $600 million in property tax cuts over several years in the bill for homeowners and renters.
The deal also increases a child and dependent care tax credit, which will help an estimated 81,000 families. Democrats also successfully pushed to include a child care tax credit that will allow a family with up to $105,000 in income to get up to a $2,000 credit for one child between birth and the age of 4, Marquart said.