2019 Tax Bill

Budget
Brief

May 2019 1
Minnesota’s Current Tax Climate

 Minnesota continues to lag in state rankings – 5th highest marginal

income tax rate, 3rd highest corporate tax rate, 2nd highest property
taxes for larger C/I properties.

 The Tax Foundation’s business climate index (Released September,

2018) rated Minnesota 43rd worst in the country. Elements of the
overall ranking included the corporate tax ranking (42nd worst), and
the individual tax ranking (46th worst).

May 2019 2
Minnesota’s Current Tax Climate
 Minnesota’s highest 9.85% marginal income tax rate is behind only
CA (13.3%), HI (11.0%), NJ (10.75%) and Oregon (9.9%).
 Minnesota’s 9.85% begins at $273K for married-joint filers. This is
the 2nd highest rate in the country at that income (Only Oregon
imposes a higher rate at a lower income).
 Minnesota’s 5.35% income tax lowest bracket is higher than the
highest bracket in 16 states. 7 other states don’t have a state
income tax.
 Only IA (12%) and PA (9.99%) have higher corporate rates than
Minnesota’s 9.8%.
May 2019 3
How Minnesota Compares
State and Local Tax Collections Per Capita

$6,090

$4,884 $4,782
$4,621
$4,473

$3,938 $4,020
$3,872
$3,478 $3,582

Minnesota Iowa (18th) Wisconsin Colorado (22nd) Ohio (26th) South Dakota Texas (29th) Indiana (36th) Florida (46th) Arizona (44th)
(7th) (20th) (31st)

Source: Tax Foundation. January, 2019 analysis of state and local tax collections per capita, fiscal year 2016
May 2019 4
Taxes Matter - Economic Growth Headwinds
Forecast Non-Farm Payroll Employment Growth

1.8%
U.S. 1.7% 1.7%
1.6%

MN
1.4%
1.3%
1.2% 0.9%

0.9%
0.7% 0.5% 0.5%

0.5% 0.3%
0.4%

0.1%
2016 2017 2018 2019 2020 2021 2022 2023

Source: MMB - February, 2019 Budget and Economic Forecast

May 2019 5
The Governor’s Tax Plan

 The Department of Revenue’s non-partisan “tax incidence” analysis

of the Governor’s tax, transportation, and HHS proposals confirms
the Governor’s plan hits the lowest income Minnesotans the
hardest.
 The bottom 50% of income earners would see the highest increase
in their tax burden from the Governor’s regressive tax proposal.
(page 4)

Source: Tax Incidence Analysis, MN Department of Revenue – Tax Research Division. April 23, 2019
May 2019 6
The Governor’s Tax Plan

 All income earners would see an increase in their tax burden

averaging 6.52% (page 4)
 Increases are higher in the bottom five deciles, averaging 9.9%, than
the top five deciles, averaging 5.9%. Page 4
 Minnesota residents would bear almost 89% of the tax increase.
(page 3)

Source: Tax Incidence Analysis, MN Department of Revenue – Tax Research Division. April 23, 2019
May 2019 7
The Governor’s Tax Plan
Percent Increase in Tax Burden Over Current Law
(1st decile = lowest income range, 10th = highest)
12.02%
11.14%
All Households: 6.52% Increase
10.02%

8.92%
8.57%
8.19%
7.80%
7.41%
6.55%

4.39%

1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th

Source: Tax Incidence Analysis, MN Department of Revenue – Tax Research Division. April 23, 2019
May 2019 8
The Governor’s Tax Plan
 “The lowest five deciles earn 15.1% of all income but are estimated to
pay 23% or more of the increases…” page 6
 “Changes to state sales and excise taxes overall make the tax system more
regressive...” page 7
 “Changes to state property taxes overall make the tax system more
regressive…” page 7
 “Changes to local taxes overall make the tax system more regressive…”
page 7
Source: Tax Incidence Analysis, MN Department of Revenue – Tax Research Division. April 23, 2019
May 2019 9
The Senate Tax Bill
Focuses on tax relief and reform:
 Reforms the Minnesota tax code in response to the 2017 federal tax bill (Tax
Cuts and Jobs Act – TCJA).
 Prioritizes broad based tax relief (all revenue generated from tax conformity is
returned to taxpayers) including a middle class income tax rate cut, expanding
Social Security relief, and supporting farmers and small businesses by
conforming to Section 179 expensing.
 Complements the Senate K-12 budget proposal by including an “opportunity
scholarship” tax credit, expanding the K-12 tax credit, and increasing education
equalization aid to help districts with low tax capacity.

May 2019 10
The Senate Tax Bill
Highlights:
 Provides for a 0.25% income tax rate reduction on the 2nd bracket from 7.05% to 6.8% in TY
2019, and a further reduction to 6.67% in the TY 2022 ($378.8 million in FY 2020-21, and $463.4
million in FY 2022-23).
 Provides for Sec. 179 expensing federal conformity. Elimination of the 5 year add-back would be
delayed one year ($174 million in FY 2020-21).
 Increases the Social Security income tax subtraction to a maximum of $6,150 from the current
law maximum of $4,500 ($42.9 million in FY 2020-21).
 Reduces the statewide property tax levy by $50 million per year beginning in taxes payable 2020
(current total levy is $828 million per year).
 Creates opportunity scholarship tax credit ($28.7 million in FY 2020-21).

May 2019 11
The Senate Tax Bill
Highlights (continued):
 Expands the K-12 tax credit by increasing income threshold and including Pre-K expenses ($8.1
million in FY 2020-21).
 Provides for additional school district equalization aid ($14.9 million in FY 2020-21).
 Reduces the charitable gaming combined net receipts tax to support increased charitable
investments in local communities ($21 million in FY 2020-21).
 Delivers tax relief for MN retailers by providing for a “vendor allowance” to administer the sales
and use tax ($17.6 million in FY 2020-21).
 Reinstates the Angel Investor tax credit at $5 mill for 1 year.
 Provides for occupation tax production mining tax credit ($4 million per year).
 Provides $2 million per year to subsidize costs incurred by counties and tribes for out-of-home
placement costs under the Indian Child Welfare Act (ICWA).
 Captures mortgage and deed tax increment, and reduces 4d low income rental housing property
tax class rate to support affordable housing.
May 2019 12