Rep. Deb Kiel answers 2013 state budget FAQs: Whose income taxes will increase? What is a warehousing tax?
ST. PAUL—I’ve had the opportunity and privilege to chat with several folks around the district this summer, and it seems many of you are concerned or curious about the same issues related to the new state budget that went into effect July 1.
To help clear up any confusion, below I’ve provided answers to frequently asked questions in order to explain how increased taxes and spending will affect families in northwestern Minnesota.
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Q: What major changes were made this budget cycle? A: Taxes and fees were increased $2.4 billion. Government spending grew by 10 percent.
The new state budget signed into law this spring by Governor Dayton increases taxes and fees by $2.4 billion and grows government All Funds spending by $6 billion—the largest spending increase in state history.
This is in stark contrast to the 2011 bipartisan, commonsense budget that was balanced without tax increases, made government live within its means, and resulted in an $8 billion budget turnaround.
You see, when I first took office two years ago, the state was in a precarious position. We faced a historic $5 billion deficit and out-of-control government spending. But since then, every economic indicator shows that our commonsense plan worked.
Today Minnesota has the fifth fastest-growing economy in the country—and it was made possible without having to raise taxes.
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Q: Which income levels will see tax increases? A: All income levels will pay more.
Many think just “the rich” are affected by this multi-billion dollar tax plan. However, experts at the Minnesota Department of Revenue say that taxpayers in every income bracket will pay more.
Yes, a new fourth tier income tax (9.85 percent) was created for single filers making over $150,000 and married-joint filers making $250,000. But the reality is the lowest income households will pay the largest percentage of income toward the Minnesota state and local tax burden.
What’s more, experts confirm that consumers will shoulder the burden when new business tax increases are passed on to goods and services.
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Q: Will I see property tax relief? A: It depends on the local units of government, but state officials say property taxes are projected to increase by $13 million, with a 6.5 percent increase on agricultural properties.
Statewide property taxes are projected to increase by $13 million, even though legislative majorities spent $400 million to lower them, according to a report issued by non-partisan Minnesota House research staff.
There is also a projected 6.5 percent increase on agricultural properties, in addition to a new tax on farm equipment repairs, higher energy rates due to new solar power mandates and a warehousing and storage services tax—all increases that will cut into farmers’ bottom lines.
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Q: Why is the new warehousing and storage tax so unpopular? A: The tax is already preventing businesses from expanding or causing them to move out of state. Plus, the extra costs will be passed on to consumers.
Starting in April 2014, the state sales tax (6.875 percent) will extend to:
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general warehousing
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storage at bulk shipping terminals (i.e. railroads, commercial docks, etc.)
You may be unaware, but almost everything you purchase has been stored before being put up for sale: fuel, groceries, ATVs, medical products, you name it.
Many of these storage businesses only see a 3-5 percent profit margin, so a 6.875 percent sales tax would have to be passed on to customers. As a result, different business expansion projects are on hold or are moving out of state.
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Q: I own commercial/industrial equipment. Will repairs on it be taxed? A: It depends.
The state sales tax (6.875 percent) was extended to the repair of commercial and industrial equipment, including:
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capital equipment used in manufacturing, mining, and fabricating
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industrial equipment used in restaurants
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farm machinery
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construction machinery
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mining machinery
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Q: Do the billions in increased spending go towards critical programs, like K-12 education? A: Not necessarily.
More spending doesn’t necessarily mean wiser spending.
Take, for instance, the K-12 education portion of the budget. In 2011 when we faced a historic $5 billion deficit, we were still able to increase the per pupil funding formula by $100—without raising taxes. In the new budget, despite raising more than $2 billion in higher taxes, the DFL still borrowed more than $50 million from our schools to help fund a $158 per pupil increase in basic funding. And, with this new money comes more mandates on our local school districts and more power for the state to run our local schools.
So where does this extra money go? Some of the new revenue will fund state agencies above their requested amounts or help create almost 1,300 new government jobs. Nearly every portion of the budget received funding increases, and statewide politicians will start to see a 3 percent pay raise in 2015 and 2016.
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Q: I smoke. How much did the cigarette tax increase? A: $1.60 per pack.
The cigarette tax was increased from $1.23 per pack to $2.83 per pack.
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Q: What else can I expect to pay more taxes on? A: Here is a list…
The sales tax was expanded to:
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internet purchases and downloads
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IT services
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DirectTV and Dish Network
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rental cars sales tax increased to 9.2 percent
Other items include:
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new estate tax that will hit some farmers
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fee increases on drivers’ licenses
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increases to energy bills because of 1.5 percent solar mandate on utilities
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3.5 percent tax on health insurance premiums to pay for state health insurance exchange (part of Obamacare, effective October 2013)
I hope this guide provided some clarification for any concerns you may have regarding the new budget. Please know I welcome your continued comments and thoughts during the summer months. Contact me at any time! I can be reached at 651-296-5091 or by email rep.deb.kiel@house.mn.