A very un-Minnesota thing has happened to our state tax code over the past decade — taxes have become less fair and more regressive. That’s because we’ve shifted more and more of the responsibility for paying for the things we value — education, health care, transportation and public safety — onto local property taxes, one of the most regressive forms of taxation there is.
We’ve been struggling with this issue in the Minnesota House for the past year and a half.
Every year we receive a tax incidence study from the Minnesota Department of Revenue, which shows how much individuals and families in various income groups are paying in state and local taxes. Over the past decade, we’ve seen the state and local tax burden shift steadily onto lower and middle-income Minnesotans and away from the wealthy.
Most of that has been caused by property tax increases. Since 2002, property taxes in Minnesota have increased by $2.7 billion, the bulk of which — $1.6 billion — fell on homeowners. That’s an 81.7 percent increase on Minnesota homeowners.
Last year, House Democrats offered a plan to provide significant and permanent tax relief to Minnesota homeowners, as well as increase the fairness of our tax system. Under the plan, if a person’s property tax bill was more than 2 percent of their income, they would receive a credit to cut their taxes. The provision would have provided $223 million in direct relief to Minnesota homeowners, with individual refunds of up to $2,500.
To pay for the credits, the plan created a fourth income tax tier on income over $400,000 for couples and $226,000 on individuals, the very people who have benefited so greatly to changes in the federal and state tax code and who now pay a smaller percent of their income in local and state taxes.
Although every dollar raised by the new income tax was going directly to property tax relief, the plan was ultimately blocked by the governor because it increased state revenues.
This year we’ve created a plan that is revenue neutral and targets state property tax relief to those who need and deserve them the most. The plan, which would cut homeowner’s property taxes by an expected 5.7 percent in 2009, combines the state’s existing property tax refund programs — the Homeowner’s property tax refund “circuit breaker” program, the market value homestead credit and the itemized property tax deduction — into a more surgical and progressive system.
The plan creates a new homestead credit state refund, which kicks in for 95 percent of all homeowners if the taxpayer’s property tax bill exceeds 2 percent of their income. The biggest property tax credits would go to people who pay high property taxes relative to their incomes — typically seniors on fixed incomes, farmers, young families just starting out and those experiencing a recent job loss or health crisis.
Individuals and couples with high incomes and relatively low property taxes would receive smaller credits or no credits at all. However, it’s important to keep in mind that if we do nothing, every Minnesotan will pay higher property taxes this year.
Our plan also protects home ownership in tough economic and personal times by alleviating the burden of escalating home market values and helps maintain stable neighborhoods by keeping senior citizens and families in their homes.
It also makes our tax system more progressive and fair, reversing a trend that’s gone on too long.
Ann Lenczewski, DFL-Bloomington, is a member of the Minnesota House and chairwoman of the House Tax Committee. Paul Marquart, DFL-Dilworth, is a member of the Minnesota House and is chairman of the House Property Tax Relief and Local Sales Tax Committee.
