GOP plan axes Minnesota's Social Security income tax, DFL sees it as gift for well-to-do
ST. PAUL, Minn. (FOX 9) - Republican lawmakers say the answer to keeping more snowbirds from leaving Minnesota is to get rid of the state's tax on Social Security income.
Tuesday, the Senate Taxes committee held a hearing on several measures either cutting or eliminating the tax. While the panel did not pass any of the bills, the committee's chair, state Sen. Carla Nelson, predicted that her proposal would quickly pass the Republican-controlled Senate.
Nelson's bill would benefit 410,000 retirees with an average savings of $1,313 per year, nonpartisan legislative researchers estimate. It would eventually cost Minnesota more than $600 million a year in lost tax revenue. Minnesota would join 37 other states that do not tax Social Security income.
"I do not believe we should be taxing retirees either," said Nelson, R-Rochester. "It is a significant revenue to our state, but I submit to you that these benefits were purchased by the retirees."
Republicans have proposed the tax break for years and said the current $7.7 billion projected budget surplus makes the timing right. Minnesota budget officials plan to release an updated projection on Monday, which will serve as a guidepost telling lawmakers how much they can spend on tax cuts and new programs.
During Tuesday's hearing, critics raised concerns that the tax break would leave Minnesota without enough money to pay for programs supporting lower-income people.
"A full repeal may not leave us with the significant funds to fund the programs that seniors need," said Mary Jo George of the Minnesota AARP, who said the advocacy group favored tax breaks that target older people with middle incomes.
About 55 percent of Social Security recipients do not pay Minnesota's tax because the state already exempts $5,500 of benefits, nonpartisan House researchers have estimated.
For higher-income people, the amount of benefits subject to tax increases significantly. Democrats said the GOP plan would benefit well-off retirees.
"The state of Minnesota would be ill-advised to grant me this tax benefit in eight years on money they could invest in health care, in child care, in transportation, in public care facilities, in parks," said state Sen. Matt Klein, DFL-Mendota Heights, who is a physician.
But Democrats are not entirely opposed to expanding a tax break on Social Security income.
State Sen. Ann Rest, DFL-New Hope, has proposed doubling the current exemption to the first $11,000 of benefits. That proposal would benefit 298,000 people with an average annual savings of $264, nonpartisan researchers estimate. Her bill would cost about $90 million a year.
Supporters of making a change said Minnesota loses more than the tax base when well-off retirees move out of state.
"I’m really tired of losing the talent and the quality of the retirees that we have, because it isn’t just their money we’re concerned about," said state Sen. Bill Weber, R-Luverne. "It’s the other contributions they make to our community."