Tax committees’ job creation bills agree on policy, disagree on funding

March 28, 2010

The legislative tax committees have been working on bills with the intent of supporting job creation. Floor votes on those bills are expected on Monday, March 29, and it’s time to review the various proposals.

The Governor’s supplemental budget included a package of business tax cuts, including such proposals as a 20 percent corporate tax rate cut, an Angel Investment Credit, expansion of the Research and Development tax credit, and tax incentives to redevelop St. Paul’s Ford plant. In the short term, the proposals have a relatively small price tag – $20 million for the FY 2010-11 biennium, but the costs increase significantly in future years, reaching $322 million in FY 2012-13 and an estimated $800 million in FY 2014-15.

The Minnesota House and Senate tax committees each have crafted proposals they say would spur more investment. Their packages are very similar in content to each other, but differ in the amount and sources of funding.

Both House (HF 2695) and Senate plans (SF 2568) would spend less than the Governor’s proposal. Their bills contain:

  • A small business investment credit for early stage capital investments (also called the Angel Investment Credit).
  • A refundable historic structure rehabilitation credit.
  • Additional flexibility for the city of Bloomington to help redevelop the Mall of America site
  • JOBZ-like tax subsidies for the Ford plant in St. Paul (CARZ), provided conditions are met. Those include a pledge by the manufacturer to invest $100 million in plant renovation.
  • A voluntary special assessment mechanism for property owners who want to make energy efficiency improvements.
  • Numerous tax increment financing proposals, including “compact development districts”.

Both the House and Senate had hoped to pay for the jobs bill by eliminating a dividend deduction on Real Estate Investment Trusts (or REITs). House Tax Chair Ann Lenczewski said legislators hoped it would raise $10 million a year. When the Department of Revenue evaluated it, it generated roughly $1 million a year.

So other funding sources needed to be found.

In the House, Representative Lenczewski first proposed “early conformity” on the expiration of some Bush-era income tax cuts for higher-income households. Accelerating the tax changes by one year would generate $77 million in FY 2011 only. Lenczewski proposed putting that money into a special revenue account and spreading it out–$15.2 million a year for five years–to pay for the job creation programs through FY 2015. Lenczewski said it was not a permanent tax increase but one-time money, and it was revenue neutral. The administration rejected the proposal, calling it a tax increase.

Lenczewski next proposed using money from increased tax compliance, a proposal that eventually passed the committee, despite concerns from the Department of Revenue about whether it would be able to raise the anticipated funds. It will net about $10 million a year for FY 2011-13.

In the Senate, Tax Chair Thomas Bakk proposed eliminating the Political Contribution Refund (PCR) for FY 2012-13 to pay for the bill. The PCR is part of the state’s campaign finance system that provides refunds for small donations to candidates or political parties. The Governor has unalloted it for the FY 2010-11 biennium. Bakk’s plan would have generated $11 million in the next biennium, he said. But he wanted to do a larger package of tax incentives.

In the Senate tax committee, an amendment was passed that took out the cuts to the PCR, but instead eliminated the lower income motor fuels tax credit, which would generate at least $30 million a year for the next three years. This funding made it possible to increase the size of the Angel Investment Credit and Historic Structure Credit.

The lower income motor fuels tax credit was part of the 2008 transportation package. The credit was an effort to offset the regressive nature of the bill’s gas tax increase. Minnesotans can apply for the credit on their income tax forms for the first time this year. The credit is $12.50 for individuals and $25 for families.

Both the House and Senate tax leaders have said through this process that they hoped to agree to a bill in advance, avoid a conference committee and get a proposal the Governor will sign.

At this point, it looks like the House will vote on a smaller jobs bill funded with anticipated revenues from tax compliance efforts, and the Senate will vote on a larger package funded by the elimination of the lower income motor fuels credit. But perhaps ongoing negotiations will bring about a compromise by the Monday floor vote.

While the desire to promote job growth is understandable, the discussion about funding sources highlights the challenge that states face in trying to stimulate the economy through tax provisions. Experts at the Center on Budget and Policy Priorities have outlined the major issues in a recent paper. First, it’s hard to make sure that broad-based reductions in the income or corporate tax, such as proposed by the Governor, have an impact within the state. The tax cuts might be distributed as dividends to shareholders across the country, or held in reserve by the corporation. Second, as we’ve seen in the legislative discussion, because states have to balance their budgets, efforts to provide tax incentives for job creation must be paired with a reduction in spending or an increase in another tax. These actions themselves can have a counter-productive drag on the economy.

Lenczewski’s plan pays for the jobs bill through a one-time tax increase on high-income individuals, a choice that minimizes the drag on the economy.

Bakk acknowledges he doesn’t know if the jobs bill will be successful or not, but he believes the legislature needs to make its best faith effort to spur the economy.

“There might be thousands of jobs in this bill. There might be zero,” Bakk told the Senate Tax Committee. “We can’t sit on our hands and do nothing.”

-Scott Russell

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Posted by Scott Russell

Important climate change legislation clears first hurdle in Congress

July 16, 2009

We’ve been talking about climate change legislation on our blog for some time. Now we are seeing real movement on this issue at the federal level. The American Clean Energy and Security Act (H.R. 2454) took a huge step forward on June 26th when it passed the U.S. House of Representatives. This important climate legislation impacts low-income households in many ways, but perhaps most significantly in that it provides a starting point for addressing serious climate change issues - like pollution and extreme weather – that disproportionately effect vulnerable, low-income communities.

A major element of the legislation is that it institutes a cap-and-trade system which will set a limit on the amount of greenhouse gases that businesses are allowed to emit, creating emissions allowances. The bill uses revenues from the sale of 15 percent of the emissions allowances to directly reimburse lowest-income households for their increased expenses as prices for energy and energy-intensive goods are expected to rise.

This relief would be provided on a monthly basis to the lowest-income 20 percent of the population, or roughly those below 150 percent of the poverty line, through an existing mechanism known as an Electronic Benefit Transfer (EBT). A small amount of additional relief is provided through an expansion of the Earned Income Tax Credit (EITC) for low-income workers without children, a group that is difficult to reach through the EBT system. You can learn more about how low-income households would benefit from the bill in a new report from the Center for Budget and Policy Priorities, “How Low-Income Consumers Fare in the House Climate Bill.”

There are many elements of the current legislation that are strong positives for low-income communities. This act will make strides in cleaning up the air to create healthier low-income communities, and it will do so without harm to the budgets of the lowest-income households. It also provides for new economic opportunities such as green jobs and increased funds for weatherization programs.

There are many vocal opponents of this legislation, so it is important that the Minnesota members of Congress that voted for H.R. 2454 (Reps. Ellison, McCollum, Oberstar, Peterson and Walz) hear from low-income advocates thanking them for their support. Find out more about how to contact your representative and please call today.

However, as action on the bill shifts to the U.S. Senate, there are some elements of the bill that we believe can be improved:

  • Consumer relief in the House bill phases out completely at 160 percent of the poverty line (about $35,000 for a family of four). We urge the Senate to extend relief to all moderate-income families.
  • In the House bill, relief is provided based on what the Energy Department calculates as a household’s average reduction in purchasing power. Given the high heating costs in our state, some Minnesota families will face higher than average reduction in purchasing power if energy costs increase. Funds should be allocated to the existing Low-Income Home Energy Assistance Program (LIHEAP) which provides assistance to low-income consumers who face utility shut-offs or other hardships.

You can learn more about our position on how to improve the bill in the Senate by reading “American Clean Energy and Security Act: Impact on Low- and Moderate-Income Minnesotans.” The Senate is expected to take action on this bill in September.

-Leah Gardner

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Posted by leahgardner

Earth Day is a good day to get to know cap-and-trade policy

April 22, 2009

What’s cap-and-trade? Well, cap-and-trade policies set a limit or “cap” on the total amount of greenhouse gases that businesses are allowed to emit, essentially creating a new commodity by distributing allowances for polluting. Cap-and-trade policies are getting attention at both the regional and federal level. For example, President Obama’s recent budget proposal would implement a cap-and-trade system where 100% of emissions allowances would be auctioned off to pollution sources such as power plants, industries and refineries. Auctioning off these allowances, or permissions to pollute, could generate billions of dollars in new revenue.

Obviously, there is an urgent need to find ways to limit greenhouse gas emissions. However, we should be careful to protect low and moderate-income consumers from the potential burden of higher energy prices. For those in the lowest income quintile with an average annual income of below $27,500, even a 15% reduction in emissions could cost an average of $750 in increased energy costs.

The good news is we can both decrease greenhouse gas emissions and protect vulnerable consumers.

The Center on Budget and Policy Priorities, for example, recently recommended one option: a “climate rebate.” A climate rebate can be funded with revenues raised from auctioning off emissions allowances. For low-income families, the rebate can be distributed using existing systems including the Electronic Benefit Transfer (EBT) systems and the Earned Income Tax Credit (EITC). For middle-income families, a climate tax credit would be a more appropriate vehicle.

Of course, there are also other options. The key, however, is that we must auction allowances to raise revenues to help mitigate the financial impact on low- and moderate-income families. If we just give those allowances away to the pollution-generating businesses, we won’t have the resources to help.

The debate on cap-and-trade policy is really heating up, so it is important for people who are concerned about low- and moderate-income families to start taking notice and start actively supporting greenhouse gas policies that will both protect the environment and protect vulnerable families.

You can contact me for more information at 651-757-3063 or leah@mncn.org.

-Leah Gardner

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Posted by leahgardner

Transportation finally has its day

February 29, 2008

Last week I filled you in on the revenue increases included in the transportation bill working its way quickly through the legislature. Here’s an update with the final revenue elements of the bill that was approved on Monday after the House and Senate succeeded in overriding the Governor’s veto. More details are available on the web.

First, two items to highlight:

Low-income motor fuels tax credit. The bill provides a $25 refundable income tax credit for individuals and families in the state’s lowest income tax bracket (in 2009, income limits are estimated to be $32,720 of taxable income for married filing jointly and $22,390 for single filers). The House also added an amendment that requires individuals to be a U.S. citizen or lawfully present in the US in order to be eligible for the credit. Since the gas tax is regressive, we think it’s a positive sign that policymakers included a mechanism to try to lessen the impact on low-income families.

Dedication of motor vehicle lease sales tax adds to General Fund deficit. The bill increases the fee on vehicle rentals and short-term leases from 3 to 5 percent of the sales price. Revenue from this sales tax is gradually redirected away from the general fund - first to pay for the low-income tax credit, and the remainder to transit, roads and streets. With the state facing a $935 million deficit, it’s unfortunate that the funds to pay for the low-income credit come at the expense of the general fund - the total loss to the general fund will be about $68 million in the 2010-11 biennium.

The other provisions:

Gas tax. A 2 cent increase in the gas tax is effective April 1 and another 3 cent increase is effective October 1. There is also a gas tax surcharge to pay back trunk highway bonds. This will phase in starting on August 1 with a half cent, increasing up to a cap of 3.5 cents.

Motor vehicle registration. The bill eliminates the cap on the motor vehicle registration tax (“tabs”), but accelerates the depreciation schedule. People will not see an increase in their tabs on their previously registered vehicles.

Local option sales tax. Allows counties in the seven-county metropolitan area to impose a 0.25 percent sales tax and a $20 excise tax on vehicles sales. No referendum is required and the funds are directed to transit projects. In Greater Minnesota, counties could impose a tax of up to 0.5 percent and a $20 excise tax on vehicles sales. The increase would require a voter referendum and funds would go to a specific project.

-Christina Wessel

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Posted by Christina Wessel

Transportation bill speeding through Legislature

February 20, 2008

See my update on the transportation bill! 

I’ve been tracking the transportation bill through the House (HF 2800) and Senate (SF 2521). This isn’t a comprehensive analysis, but here are the major revenue components which together would raise several hundred million dollars each year for our state’s transportation needs:

  • A 2 cent increase in the gas tax effective (roughly) the first day of the month after enactment and another 3 cent increase as of September 1, 2008.
  • A surcharge on the gas tax (capped at 3.5 cents) to recover debt service needed to repay trunk highway bonds.
  • Eliminates the cap on the motor vehicle registration tax, but accelerates the depreciation schedule. People will not see an increase in their tabs on their previously registered vehicles.
  • Provides a $25 refundable income tax credit for individuals and families in the state’s lowest income tax bracket (in 2009 income limits are estimated to be $32,720 of taxable income for married filing jointly and $22,390 for single filers).
  • Increases the fee on vehicle rentals and short-term leases from 3 to 5 percent of sales price. Gradually redirects the motor vehicle lease sales tax away from the General Fund. The funds are first used to pay for the low-income tax credit, then the remainder is distributed with 50% going to Greater Minnesota transit, 25% to metro area transit, 17.25% to county state-aid highway fund and 7.75% to municipal state-aid street fund.
  • Allows counties in the metropolitan transportation area (I think potentially 18 counties) to opt-in by resolution of the county board to a half-cent sales tax increase and an excise tax of $20 per vehicle (decreases to 0.25% after June 30, 2028). The funds would be used 50% for transit, 25% for trunk highways or local roads of regional significance and the remaining for any purpose (including up to 5% for pedestrian programs, bicycle programs and pathways). This provision will expire October 2, 2008 unless at least one county in the 7-county metro area imposes the tax.
  • Allows any county outside of the metropolitan transportation area to impose the half-cent sales tax and $20 motor vehicle excise tax if approved at a general election referendum. The funds raised would be dedicated exclusively to covering the costs of a specific transportation project or improvement and the tax would terminate oncde the project was completed. (The Senate amended the bill this morning to say “up to” a half-cent tax increase.)

The bill also originally indexed the gas tax to inflation beginning July 1, 2010, but this provision was removed as part of a compromise.

-Christina Wessel

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Posted by Christina Wessel