House approves omnibus tax bill with $3 billion in cuts, tax increases for top earners

The checks are almost in the mail. Raising kids could become a tad more affordable. And three-fourths of those receiving Social Security income wouldn’t pay taxes on it.

Such would be the case if the provisions in the House omnibus tax bill become law. And they are edging closer to reality, as the House approved HF1938 Thursday evening by a 69-57 party-line vote after four-and-a-half hours of debate.

Sponsored by Rep. Aisha Gomez (DFL-Mpls), the bill, as amended, would create a new fifth-tier income tax rate for the highest 0.8% of earners and a worldwide combined reporting provision for corporations that sock away their earnings in offshore accounts.

But that’s just the revenue-raising side of the equation. The bill’s primary focus is tax cuts, and the spreadsheet shows $3 billion worth are in the bill by the end of fiscal year 2025, from those rebate checks that Gov. Tim Walz has been touting to new tax credits for families with children and a modified Social Security subtraction that will apply to 76% of Minnesotans receiving such benefits.

“This bill constitutes the largest tax cut in Minnesota history, regardless of what you may have heard,” Gomez said. “It contains targeted tax cuts. It puts money in the pockets of the Minnesotans who most need it. … It has permanent, ongoing property tax refunds targeted at folks who need it the most. … It funds our cities and our counties. It adds $100 million each to local government aid and county program aid that goes across the state to help our local governments function, to keep their obligations to their residents.”

Among tax code changes that would produce the largest cuts would be a refundable renter’s income tax credit and a one-time property tax refund payment. And municipalities and counties would benefit from a tax exemption on construction materials for government projects, as well as $100 million increases for local government aid, county program aid and local affordable housing aid.

A Gomez-sponsored amendment was adopted that would increase the appropriation for tax credit outreach. Another proposed by Rep. Elliott Engen (R-White Bear Township) would add several baby care products to items exempt from sales taxes and institute a sales tax holiday on school supplies.

Republicans proposed 15 other amendments, none of them adopted. The one that produced the liveliest debate was sponsored by Rep. Patti Anderson (R-Dellwood) and would have removed language from the bill requiring electronic pull tab games to involve pushing four buttons instead of one. That controversy stems from some games’ similarity to slot machines, which can only be operated at tribal casinos. A vote on the amendment resulted in a 64-64 tie. Hence, the amendment was not adopted.

Among other unsuccessful amendments were measures that would have:

• eliminated the film production tax credit and transferred its funding to either increase the dependent exemption, the dependent care credit or raise income eligibility for the homestead credit;
• eliminated St. Paul’s $30 million grant for street maintenance, and transferred those funds to either nursing facility grants, paid leave implementation grants or mental health services for police and firefighters;
• required the commissioner of revenue to reduce some taxes based on November budget forecasts;
• required a two-thirds majority in each legislative body to increase or alter income tax rates;
• reduced the combined net receipts tax for organizations that use charitable gaming;
• altered rules regarding the stadium reserve account;
• adopted a five-year rolling average for property value assessments; and
• redistributed the bill’s $75 million in tribal nation aid partially to counties that include reservation land.

[MORE: Here’s some of what’s in the bill, download the spreadsheet here]

“This tax bill today is taking jobs and wealth out of the state of Minnesota,” said Rep. Anne Neu Brindley (R-North Branch). “And it is going to have the opposite effect of what you are trying to do.”

“It’s a socialist plan paid for by some and benefited from by others,” said Rep. Jon Koznick (R-Lakeville).

“This is not the tax bill we were hoping for,” said Rep. Kristin Robbins (R-Maple Grove). “Now we will have the third-highest income tax and one of the highest capital gains rates, one of the highest corporate rates.”

But Rep. Dave Lislegard (DFL-Aurora) said he was proud of the bill.

“If you look at this bill, it touches everyone,” he said. “It benefits our seniors, it benefits the most vulnerable. Tax relief. Local government aid. Sixty-eight percent of the money in Minnesota comes from the seven-county metro. … If you’re from greater Minnesota, you need to understand where the money comes from. It’s generated here and 60% of local government aid goes to greater Minnesota. … This is a wonderful, pragmatic bill.”

“This is going to improve lives,” Gomez said. “It’s going to make our tax code simple and more fair. It focuses on families and children who are in poverty. And on seniors who are struggling economically.”

The $2.42 billion omnibus Senate tax bill was unveiled on Wednesday and was being discussed in the Senate Taxes Committee on Thursday. That bill’s totals are very similar to the House when it comes to the modified Social Security subtraction, the one-time refundable tax rebate, the child and working family tax credit, and the corporate tax provision on worldwide combined reporting.

But the Senate bill doesn’t include the renter’s tax credit in the House bill, nor a blanket construction materials sales tax exemption for local governments and nonprofits. And it would increase the funds for local government aid and county program aid by only $40 million in the 2024-25 biennium, but earmark $325 million in one-time public safety aid for local governments over the same period.