Dear Neighbor,
With the new legislative session set to start on Tuesday, on Feb. 20, let’s take this time to briefly review the previous session and then look ahead to what could be happening this year.
The two major items I supported last year were tax reform and increased funding for roads and bridges. Both were accomplished, with the tax bill providing over $650 million in relief over the next two years and nearly $800 million in 2020-21. That represents the largest tax relief package for Minnesotans in nearly 20 years. Among its features is a reduction in state income tax for seniors receiving Social Security. Over 280,000 tax returns are expected to show a reduction in state tax, and of that total, an estimated 72,000 will no longer pay state income tax on their Social Security benefits.
In the area of transportation, we made the largest investment, without a gas tax increase, in our state’s history. The increase is more than $300 million over the next two years. As part of that total, there is also a sizeable increase in funding for local roads and bridges, with $48 million additionally going to counties and $15 million to cities.
Turning to the upcoming session, I think another serious look at state taxes is in order. The reason being the massive tax bill passed at the federal level. If we do nothing in terms of conformity, the state stands to collect an additional $700-$800 million in tax revenue this year. And that amount grows in future years. The reasoning is that most are expected to have higher net incomes with the new federal tax provisions. The standard deduction will double, and federal tax rates have been adjusted downward. If the state doesn’t adjust its rates and folks have higher incomes, that means more tax revenue for the state.
There are other factors as well, including the doubling of Section 179 fast depreciation on federal returns. Currently, Minnesota allows only $25,000 to be deducted in the year an item is purchased, with the balance spread over the next 4 years. Another factor that will make this situation even more challenging is a change in how the IRS views the value of equipment “traded in” on newer machines. The value of the trade-in equipment will now be classified as income on federal returns. If Minnesota keeps its $25,000 maximum for fast depreciation, that will also mean higher income levels for many.
With the state budget set last year, the upcoming session will also see work done on a bonding bill. Even though one was done last year, the even-numbered year sessions are traditionally marked by major bonding legislation. The reason one was done last year is because 2016’s bill was derailed in the final minutes of that session by an amendment providing funding for light rail.
We also need to provide additional funding for the Rural Finance Authority. With this current downturn in the ag economy, the need is higher than usual for re-financing. With RFA money backing local banks in the process, it’s hoped more farmers can make it through these difficult times and remain on the farm.
Other areas where our Ag. Policy Committee may look into are the nitrogen rule being worked on by the Dept. of Agriculture, the ditch mowing situation, buffers, and compatibility issues with equipment as we move ahead with B-20 diesel fuel this May.
Sincerely,
Paul