Social Security Part of Largest Proposed Tax Cut in Minnesota History — How It Could Impact State’s Budget Surplus

Aerial Shot of Downtown Minneapolis, Minnesota at Sunset
Gian Lorenzo Ferretti Photograph / Getty Images

Minnesota Republicans have proposed the largest tax cut in the state’s history — including eliminating taxes on all Social Security benefits — in a move that could trim nearly half of the state’s current budget surplus.

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In addition to getting rid of taxes on Social Security income, the proposal would reduce the lowest-tier income tax rate from 5.35% to 2.8%, WCCO/CBS Minnesota reported. The proposal was made last week by Republicans in the Minnesota State Senate.

“Minnesotans are overtaxed,” State Sen. Gary Dahms (R-Redwood Falls) said in a statement on the Minnesota Senate Republican Caucus website. “Our tax proposal targets middle-income families and seniors who are often bearing the brunt of Minnesota’s high taxes. Every single Minnesota family will see a tax reduction in our plan, and we are working to fully eliminate the unfair tax on Social Security income once and for all.”

The tax cut would wipe out about $3.5 billion of the state’s $7.7 billion projected surplus in the current year, WCCO/CBS Minnesota reported, and also cut into the next two-year budget. The total cost is estimated at more than $8.5 billion over the next three years.

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Minnesota Democrats wasted little time pushing back at the Republican proposal. Democratic House Tax Committee Chairman Paul Marquart said in a statement that the proposal would mostly benefit Minnesota’s wealthiest taxpayers and also hamstring lawmakers’ ability to spend money elsewhere.

Democrats have proposed distributing $1,500 bonus checks to frontline workers, while Democratic Governor Tim Walz has proposed sending relief checks of $175 or $350 to more than 2.7 million Minnesota households.

“We can’t do that if Republicans use the budget surplus to provide tax cuts for millionaires and billionaires who don’t need the state’s help,” Marquart said.

The Republican proposal came after the state Senate passed a $2.73 billion bill earlier this month to pay the state’s debt to the federal government for jobless aid during the COVID-19 pandemic, and also replenish the unemployment insurance trust fund to avoid automatic payroll tax increases for businesses after a March 15 deadline.

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As previously reported by GOBankingRates, Minnesota is one of only 12 states that still tax Social Security benefits. The others are Colorado, Connecticut, Kansas, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont and West Virginia. However, New Mexico lawmakers recently introduced a bill that seeks to exempt Social Security benefits from personal income taxes.

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.
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