The days are getting longer and the weather is turning warmer. That’s a sign winter is changing into spring. What hasn’t changed since January are the critical needs for this legislative session:
- The need for a more fair tax system. It’s still true that in Minnesota, as income grows, the share of income paid in taxes falls.
- The need to end the cycle of budget deficits. Minnesota still faces significant gaps between public needs and the resources it takes to meet them, despite improvements in the recent February forecast. The state faces a $627 million deficit in the FY 2014-15 biennium. If we account for inflation, we face a $1.5 billion shortfall in FY 2014-15 and a $1.5 billion shortfall in the next biennium.
- The need to invest in stronger, healthier and more educated communities.
Governor Dayton’s supplemental budget released today seeks to reach those essential goals.
His supplemental budget still includes critical investments in education – including early childhood education and all-day kindergarten – to close achievement gaps and ensure Minnesota draws on the talents and strengths of all residents. The budget increases funding for financial aid to ensure college remains accessible and our young people don’t start their careers hobbled by student loan debt. It still contains proposals for more effective and efficient health and human services and other investments in our future prosperity.
The supplemental budget includes a small but important number of new investments in the well-being of Minnesota families and building the ladders to the middle class, including:
- Dedicating resources so that working Minnesotans can continue to access affordable premium-based health insurance through MinnesotaCare.
- Restoring $500,000 for Family Assets for Independence Minnesota (FAIM), which helps low-income working Minnesotans build assets by matching their savings at a 3:1 ratio and providing financial literacy training.
- $5 million to address homelessness among youth.
- $43 million to freeze tuition for undergraduate students at the University of Minnesota for two academic years.
- $3 million to restore funding for Crime Victim Assistance grants.
To raise the revenues needed to address the deficit, make the tax system less regressive and make crucial investments, the supplemental budget includes a tax plan that:
- Creates a new income tax rate of 9.85 percent on taxable income above $250,000 for married filing joint filers, above $200,000 for heads of households and above $150,000 for single filers. Only about two percent of Minnesotans would pay additional income taxes under this proposal. This raises $1.1 billion in FY 2014-15.
- Makes $18 million in improvements to the Property Tax Refund for Renters (the Renters’ Credit), ensuring that these low- and moderate-income Minnesotans don’t pay too high a share of their incomes in property taxes. This would provide an average $57 in additional property tax refunds to more than 300,000 Minnesota households, and make up a portion of cuts passed in 2011.
- Updates Minnesota’s Working Family Credit to reflect recent federal changes affecting married couples. The Working Family Credit is a crucial tool for making the state’s tax system less regressive. More than 54,000 working families would benefit from this provision.
- Increases taxes on tobacco products, primarily through a 94-cents-per-pack increase on cigarettes, raising $317 million.
- Ends some exemptions from the corporate franchise tax, including for foreign royalties and foreign operating corporations. This raises $298 million in FY 2014-15.
- Raises $10 million from requiring some internet retailers to collect sales taxes from Minnesota residents, just as retailers physically located in the state do.
- Adjusts minimum fees paid by businesses, which have not been updated since 1990, raising $19 million.
- Increases Local Government Aid to cities by $80 million and County Program Aid by $40 million in FY 2015.
Components of the Governor’s original tax reform plan that have been removed include:
- Lowering the state’s sales tax rate to 5.5 percent and extending the sales tax to items of clothing that cost more than $100, as well as many services purchased by consumers and businesses.
- Providing a property tax rebate of up to $500 to all Minnesota homeowners.
- Reducing the corporate tax rate from 9.8 percent to 8.4 percent.
- Lowering the state property tax paid by businesses and cabins and slowing the rate of future growth.
As we hit the halfway point in the session, three critical goals remain: sharing the responsibility for funding public services more equally by making the tax system less regressive, putting the state and its residents on firm financial footing, and investing in the building blocks of shared economic success. The Governor has laid out his plan. Now it’s up to the Legislature to pass a budget plan that meets these goals.
You can find more details in the Supplemental Budget Update prepared by Minnesota Management and Budget and other materials on the Governor’s website.