Minnesota one of few states to scale back tax credits for low-income families


Most states have been facing budget shortfalls. But Minnesota is one of a few states in the nation that has cut tax credits for low-income households during the recession, according to a recent paper by the Center on Budget and Policy Priorities.

Such actions are counter-productive, as tax credits are one strategy to help low-income working families survive during the economic downturn. These policies not only help those most vulnerable to the recession, but they also help spur the recovery. People with little money spend those tax credit dollars quickly, and those dollars circulate in the local economy.

Governor Tim Pawlenty unalloted the Renters’ Credit in 2009, cutting funding by 27 percent or $51 million, impacting nearly 300,000 low- and moderate-income households. This year, the Governor and Legislature passed a jobs bill that eliminated a $30 million motor fuels tax credit for low-income people in FY 2011 and used the money instead for angel investment and other business tax credits.

The recent Minnesota Supreme Court ruling puts into question the Governor’s unallotments, giving Minnesota an opportunity to rethink its policies and better position itself for the economic recovery.

On Monday, the legislature put forward a budget balancing-proposal that takes a balanced approach – both raising revenues and cutting spending. The revenue proposal – a new income tax bracket on high-income households – seeks to reverse the trend of rising regressivity in our tax code, which has shifted more of the responsibility for funding services on to low- and middle-income Minnesotans. That is a welcome step towards rebalancing the tax system, but we should not at the same time ratify the unallotment cut to the Renters’ Credit, which is a critical tool in offsetting the regressivity of the property tax system.