Spending spree in Tax Committee
After last week’s news that the state’s budget outlook has declined since November, Senate Republicans responded by saying, “The last thing we should do is add permanent spending commitments to the state budget.” This week, the Republican-led Tax Committee considered a slew of permanent tax-cut proposals that would drain $1.6 billion from the state budget over the next two years and $3.3 billion in the following biennium.
There is wide consensus that this session should include some targeted tax relief, particularly for low- and middle-income Minnesotans who didn’t benefit from federal tax changes in 2017. In fact, Gov. Walz’s initial budget includes more than $440 million in tax relief. However, the proposals heard this week are largely focused on corporations and wealthy earners and would spend far more than the state can afford.
One bill proposes a 1% cut in the corporate income tax at a cost of $290 million. Corporations received a 40% rate cut in the federal tax bill passed in 2017, which represented 92% of the total tax benefits approved by Congress that year. Models continue to show that large businesses fared very well under that tax reform while average taxpayers are still waiting to see any real impact.
The second bill would completely repeal the state’s estate tax. Under current law, estates must have more than $2.7 million in assets — $5 million for small businesses and farmers – before the estate tax is triggered. Because of significant estate tax cuts passed by the Legislature in 2014 and 2017, only 300 wealthy estates reached this threshold and owed estate taxes in 2017. The bill considered this week would essentially spend nearly $300 million to provide 300 wealthy heirs an average $383,000 tax cut. (SF 1449, SF 1448)