Yesterday, legislative committees heard two tax relief proposals that deserve serious consideration during the 2014 session. They are Senate File (SF) 2484, which would increase the Working Family Credit and a house bill,* which would provide a one-time increase in the Homestead Credit Refund and the Renters’ Property Tax Refund (PTR).
The Working Family Credit (WFC) is Minnesota’s version of the federal Earned Income Tax Credit (EITC). The WFC, like the EITC, targets tax relief to low-income people who are working. Low-income households in Minnesota pay a higher percentage of their income in total state and local taxes than do high-income households. The WFC helps to reduce the high effective tax rates among low-income households and is an efficient way of reducing poverty among working families.
SF 2484 (Dziedzic) does two things. First, SF 2484 conforms Minnesota’s WFC to changes in the federal EITC enacted in 2012. This change, which has been supported by Governor Dayton and by legislators on a bi-partisan basis, would increase the income level at which married joint tax filers can qualify for the WFC, effectively providing more tax relief to these households. Second, SF 2484 would increase the amount of the tax credit that qualifying households receive. According to Revenue Department estimates, SF 2484 would benefit 331,000 working low-income households and would reduce state tax revenues by an estimated $48 million in FY 2015, increasing to $50 million by FY 2017.
The Homestead Credit Refund and the Renters’ PTR targets tax relief to households that have high property taxes relative to their income. Dollar for dollar, no other programs do more to reduce tax regressivity than these two refunds, according to the 2013 Minnesota Tax Incidence Study. As noted in a 2013 Minnesota 2020 article, rental property taxes are the most regressive form of property taxes in Minnesota; statewide Renters’ PTR payments failed to keep pace with growth in rental property taxes since 2000. This problem was compounded by cuts to the Renters’ PTR in 2010 and 2011, although the 2013 tax act restored some of this lost funding.
The house bill would provide a one-time three percent increase in the Homestead Credit Refund and a six percent increase in Renters’ PTR payments. The refunds would be based on homestead property taxes and the portion of rent attributable to property taxes paid in 2013, which are typically filed for in 2014. Minnesota 2020 estimates that this bill would reduce state tax revenue on a one-time basis by approximately $25 million, with most of the cost falling primarily in FY 2015. The provisions of the hous file have been incorporated into HF 1884 (as proposed to be amended), the Omnibus Property Tax Division Report. (Much of the Property Tax Division Report is typically incorporated into the House omnibus tax bill.)
Minnesota 2020 has favored limiting tax relief during the 2014 session to federal conformity initiatives and repeal of business-to-business sales taxes enacted last year, with the balance of the projected $1.23 billion FY 2014-15 surplus placed in the state budget reserve. However, SF 2484 and the house file would both be extremely effective ways of targeting to tax relief to those Minnesotans who currently have the highest state and local taxes relative to their income. Both bills beef-up existing programs that are highly efficient at reducing poverty through targeted tax relief, thereby providing a powerful bang for the buck in terms of economic stimulus. State policymakers should give strong consideration to both bills during the 2014 session.
*This file has yet to be assigned a file number.