The Senate Tax Committee considered a bipartisan batch of proposals this week that would change how Minnesota taxes Social Security benefits. Under current law, about 60% of Minnesota households with Social Security income already do not pay taxes on their benefits, either because their income falls below the level at which state and federal taxes apply or because they are eligible for the Minnesota Social Security tax subtraction conceived by DFL Senators and passed into law in 2017.
The DFL bill heard this week (SF 3135) would nearly double that current subtraction, allowing moderate-income seniors to subtract up to $11,000 of Social Security benefits from Minnesota taxable income each year. The idea costs about $80 million per year and primarily helps seniors earning less than roughly $100,000 per year afford rising costs.
In contrast, Republican proposals heard this week would cost more than $1 billion every budget cycle and primarily benefit a relatively small group of seniors earning more than $100,000.
Several seniors currently collecting Social Security told the committee that they were concerned about spending that amount of money on a tax cut that benefits a sliver of Minnesotans. AARP testified that their group prefers a more targeted approach that focuses on low- and middle-income retirees to ensure the state’s budget is not starved to the point that other services seniors rely upon are negatively impacted – things like health care, transit, parks, and long-term care options. These testifiers stressed that Minnesota’s quality of life is equally as important as taxes to most seniors and that any proposal should keep balance in mind.