Tax bill includes improvements for working families, boosts reserves

The Minnesota Legislature took important steps to make the tax system work better for working Minnesotans today when it passed two great improvements to the Working Family Credit. House File 1777 conforms the credit to federal improvements reducing marriage penalties starting in tax year 2013, and it increases the maximum credit starting in tax year 2014. These two improvements together represent about a 25 percent increase in the Working Family Credit.

House File 1777 also includes a number of other federal conformity items, which make Minnesota’s tax system simpler by mirroring a number of credits and deductions found in the federal tax code, and repeals three business-to-business related sales taxes (commonly called ‘B2B’).

The bill also repeals the gift tax enacted last year and cuts Minnesota’s estate tax. We’ve argued that policymakers should minimize the loss of revenue and the impact on tax fairness as they sought to address some technical problems with the estate tax. The estate tax cut passed today is about $50 million smaller in FY 2016-17 than other versions on the table this year.

House File 1777 also makes a $150 million contribution to the budget reserve. As we come out of more than a decade of frequent budget deficits, it’s wise to strengthen our budget reserves to prepare for the next downturn in the business cycle. Adequate reserves soften the shock of future budget shortfalls and enable the state to better meet the needs of Minnesotans during tough times.

In total, the bill cuts taxes by $443 million in this budget cycle, and $956 million in FY 2016-17.

Policymakers in the House and Senate said today they expect to put together a second tax bill before the session is over.

-Nan Madden

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