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How does the Senate Republican tax bill stack up?

Minnesota’s Senate Republican released their tax plan today. What is in it, and is it any good?

Reducing the lowest rate

Good news. Last session Minnesota’s second income tax tier was cut from 7.05% to 6.80%. Now, Senate Republicans want to cut the bottom rate. This is good news. Minnesota’s lowest state income tax rate is higher than the top rate in 25 states, so this is welcome relief.

Expanding the K-12 Education Tax Credit

Good news. It leaves money with the Minnesotans who earned it and allows them to have more control over their most precious investment of all: their kids.

Eliminating the tax on Social Security Income

Good news. It always seems pretty weird to me that we take money off people in tax to give back to them when they retire then tax it again when they’re retired and we give it back to them. It is so weird that Minnesota is one of only 13 states that does this.

Fully conforming to Section 179 of the federal tax code

Good news. At present, the state tax code includes a loophole that forces some farmers and business owners to immediately pay income taxes for the financial gain they saw after trading in equipment in 2018. By aligning the state’s tax code with federal tax code, this will be removed. Minnesota’s farmers might get more benefit from a rapid conclusion to the mutually harmful trade war with China, but there is little that Senate Republicans can do about that.

Reallocating more mortgage and deed tax revenue to affordable housing programs

Bad news. As we have said repeatedly, the problem with affordable housing in Minnesota is driven primarily by excessive state and local taxes, fees, and regulations which effectively make it impossible to build affordable housing. Throwing more taxpayers money at the problem will treat symptoms, not causes.

Reforms and reductions to Charitable Gaming rules

Good news. Presently, the state government swallows up a large chunk of the proceeds of these activities. This measure will leave more of the money where people wanted it to go.

Overall this is a decent bill which will leave Minnesotans with more of the money they worked hard for. Perhaps the biggest complaint is not from what is in it, but what isn’t. Despite promising noises about estate tax repeal from Senate Democrats, the Republicans have declined to pursue that. Research shows that the estate tax, as well as being unfair, actually costs the state government revenue. It is a shame that Senate Republicans have not taken the opportunity to repeal it.

John Phelan is an economist at the Center of the American Experiment. 

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