$500 rebate checks left out as Minnesota House, Senate release dueling tax relief plans

Minnesota Senate Republicans are proposing to use $8.3 billion over the next three years to permanently cut income taxes and exempt Social Security income from state taxes.

House Democrats have proposed a smaller tax relief package that calls for a $325 rebate to parents, expanding the dependent care tax credit, and increasing a credit for student loan payments.

One item that didn't make the cut in either plan: Gov. Tim Walz's proposal for direct payments of $500 per adult.

Minnesota lawmakers are putting their political priorities on paper this week in the form of omnibus bills that contain dozens of spending and policy plans. It's through these bills that lawmakers will spend the $9.3 billion budget surplus - but only if the divided Legislature reaches an agreement.

While there is pressure to show progress to voters, there may be an incentive not to do anything. Walz and the entire Legislature are up for re-election this fall, meaning the party that wins could dictate how billions of dollars get spent in 2023.

Senate plan: Income tax cuts

The Senate proposal would spend $3.3 billion next year and $5 billion during the two years after that on the GOP's top tax priorities.

One would cut the state's bottom income tax rate - which all filers pay on at least a portion of their income - nearly in half, from 5.3 percent to 2.8 percent. A married couple making $100,000 would save about $1,000 a year under the Republican plan, or about $38 per biweekly paycheck.

The second proposal would exempt all Social Security income from Minnesota taxes, regardless of how much other income a retiree has. Under current law, retirees who primarily rely on Social Security income already do not pay tax on that money.

"Believe me, our tax policy is adequate. It is over $9 billion too adequate," Senate Taxes Chair Carla Nelson, R-Rochester, said in an interview. "We do not need all of those funds in the state coffers."

House plan: Targeted tax credits, rebates

The House DFL's tax bill is less than half the overall size of the Senate plan. Among its proposals:

• A $325 rebate to parents for each child under 17 years old (phases out above $140,000 of income for married filers or $70,000 for singles)
• Raising the dependent care tax credit to a maximum of $3,000 per year through 2028 (phases out above $125,000 of income for all filers)
• Increases the student loan credit to $1,400 a year, up from $500
• Changes the renter's credit to a refundable income tax credit. About 120,000 eligible people currently don't apply for the current renter's credit, House Taxes Chairman Paul Marquart said

"The strength of the House tax bill is that it’s not just a little bit going out to everyone," Marquart, DFL-Dilworth, said in an interview. "We have very intentionally said, where can we make the biggest difference in people’s lives?"

Where do $500 checks stand?

Walz has made rebate checks a centerpiece of his 2022 agenda as he campaigns for re-election.

The DFL governor has said direct payments sent out this summer are the best way to immediately fight high gas prices, grocery prices, and home heating costs. Inflation in the U.S. is at a 40-year high.

The $500 per adult would be subject to income limits of $164,400 for single filers and $273,470 for married couples.

But Senate Republicans have dismissed the idea as a "gimmick" and DFL House Speaker Melissa Hortman views payments as an inefficient way to use the budget surplus.

Budget priorities

The differences in the House and Senate tax bills are reflected in other spending plans. While the House and Walz have proposed billions of dollars in spending on public schools and other programs, the Senate is reserving most of the budget surplus for tax cuts.

On Monday, House Democrats released a K-12 education bill that includes $1.1 billion in new money for public schools next year. More than $100 million of that new spending goes to mental health supports, while House Democrats are also adding funding for special education and English learning programs.

In sum, the House education spending plans require eight pages to detail.

In contrast, the Senate GOP's proposal requires just a third of a page. Republicans are proposing $30.7 million in new school spending, all of it on a literacy initiative.