Apr 27, 2023 - Politics

Key Minnesota Senate bill stops short of full repeal of state taxes on Social Security income

Illustration of Benjamin Franklin hiding behind a Roman column.

Illustration: Lindsey Bailey/Axios

A proposal to fully repeal Minnesota state taxes on Social Security income appears headed for retirement after it was left out of a key spending bill.

Driving the news: The Senate Tax Committee released a sweeping package this week that sponsors say would result in $4 billion in tax cuts over the next four years.

  • It includes one-time payments for taxpayers, credits for families with children, and property tax relief. A proposed change in how taxes are calculated for multinational corporations could raise more than $1 billion in state revenue.

Yes, but: Like the House version released last week, the Senate bill exempts married seniors earning up to $100,000 and individuals earning up to $78,000 from paying income taxes on their Social Security benefits, instead of eliminating the policy altogether.

Why it matters: The move, which signals the full repeal won't be on the table during end-of-session budget negotiations, resolves a key issue dividing a majority of Democrats in the Legislature.

What they're saying: The bill's backers say the change will result in roughly three-quarters of Minnesota seniors paying no state tax on the benefits they receive, up from about half under the current rules. Other provisions are aimed at providing relief to senior property owners.

  • Senate Tax Chair Ann Rest defended the package following a committee hearing Wednesday, saying it provides as much relief to seniors and families as feasible without raising taxes on individuals.
  • She expects all 34 Democrats in the chamber to vote for the bill.

The other side: Republicans, and some Democrats, wanted Minnesota to join the 39 states that don't have seniors pay state taxes on their Social Security income.

  • “Increasing the threshold is appreciated, but the reality is most people agree that seniors shouldn’t be taxed for a benefit they already paid for,” Senate GOP Tax Lead Bill Weber said. He called the bill "disappointing."
  • At a committee hearing Wednesday, Weber said Republicans are willing to put up votes on a stalled capital projects borrowing bill to free up more cash for the full repeal of Social Security taxes.

Reality check: Despite support from a handful of swing district Democrats, full tax elimination always faced long odds in the DFL-controlled Legislature.

  • Legislative leaders and Gov. Tim Walz have repeatedly shot down the idea, despite an agreement last session to do away with the taxes.

What to watch: Expect Republicans to offer amendments on the floor to add the total repeal back into the bill.

  • Even if it fails, the maneuver could put vulnerable Democrats on the record voting against something they supported on the campaign trail.

What's next: The House's bill is up for a floor vote on Thursday, while the Senate is scheduled to act on its version Monday.

  • Lawmakers from both chambers will then meet in a conference committee to try to resolve the differences in the proposals ahead of the May 22 adjournment deadline.

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