Policymakers will soon need to work out differences between the House and Senate omnibus tax bills in a conference committee, making this a good time for an overall picture of what’s in the House bill, House File 2337.
The House omnibus tax bill contains a number of tax cuts. In the short term, those tax cuts are primarily paid for by deep cuts to the Renters’ Credit, a property tax refund for low- and moderate-income renters.
But in the long term, the House omnibus tax bill digs the state’s future deficit hole deeper, adding $228 million to the $1.1 billion projected revenue shortfall in FY 2014-15. And the cost of the bill grows over time, because it gradually eliminates the statewide property tax through 2025. If the statewide property tax were eliminated all at once in FY 2014-15, the cost would be $1.7 billion. The bill does not identify a replacement revenue source or the cuts in services that would be needed as a result of eliminating the statewide property tax.
The bill’s tax cuts total $95 million in FY 2012-13 and $420 million in FY 2014-15. The primary focus of the tax cuts are businesses or business investments. The major tax cut provisions include:
- Phasing out the statewide property tax on businesses and cabins so that it is fully eliminated in 2025 ($40 million in FY 2012-13 and $310 million in FY 2014-15).
- Increasing the Research & Development Credit, a refundable tax credit for businesses with certain research and development expenditures ($26 million in FY 2012-13 and $42 million in FY 2014-15).
- Allowing emerging biotechnology corporations to transfer or sell certain tax benefits to other corporations ($10 million FY 2012-13 and $45 million in FY 2014-15).
- Increasing the Angel Tax Credit for those investing in certain start-up businesses ($5 million in FY 2012-13 and $10 million in FY 2014-15).
- Creating a jobs tax credit for employers who hire qualified veterans ($2 million in FY 2012-13 and $4 million in FY 2014-15).
- Allowing businesses to get a sales tax exemption when they purchase capital equipment, instead of requiring them to pay the tax and apply for a refund ($8 million each in FY 2012-13 and FY 2014-15).
- Increasing the targeted property tax refund to homeowners of any income level whose 2012 property taxes increase by at least 12 percent and $100 ($4 million in FY 2012-13).
As we’ve previously noted, in the current budget cycle these tax cuts are primarily funded by a proposed 38 percent cut to the Renters’ Credit, which refunds a portion of property taxes that renters pay through their rents. As a result, the average refund would be cut by $213, and 66,200 Minnesota households would become ineligible – that’s one in five currently eligible households.
In addition, the bill raises some revenues by replacing the current Foreign Operating Corporation deduction for companies with international activities with a credit (raises $25 million in FY 2012-13 and $40 million in FY 2014-15).
The bill raises $1 million by changing Local Government Aid (LGA) so that cities with populations of more than 5,000 will receive the same amount of LGA in 2013 as they did in 2012. A number of local development provisions are also in the bill.