Minnesota Democrats strike a deal on rebate checks, credits and Social Security tax cuts

Democrats struck a deal Wednesday on a $3 billion plan to send one-time tax rebate checks of $260 to 2.5 million Minnesotans, create a new tax credit they hope will slash childhood poverty rates and exempt many seniors from taxes on their Social Security income.

Local governments also will see a boost in aid to keep property taxes down and help cover public safety costs.

Not everyone will see a tax cut under the bill, and some corporations and wealthier Minnesotans will pay more.

"We had an extraordinary opportunity here to provide for children and families across the state," DFL Senate Tax Chair Ann Rest said.

The deal, presented late Wednesday night, comes after months of negotiations among Democrats on how much to cut taxes — and who should benefit most — with a historic $17.5 billion budget surplus at their disposal. Republicans have been critical of the plan, pushing for more of the surplus to be devoted to tax cuts.

The final agreement on the one-time tax rebates is smaller than the $1,000 for individuals and $2,000 for married couples that Gov. Tim Walz pitched earlier this session.

Under the deal, single Minnesotans who make up to $75,000 a year can get a one-time refundable tax credit of $260, and $520 for married joint filers who make up to $150,000 a year. Families with children can get $260 more per child, up to three children, for a maximum of $1,300.

DFL legislative negotiators included a version of the governor's proposal to create a new child tax credit, which they estimate will cut childhood poverty in the state by nearly 25 percent. The new credit will provide families $1,750 per dependent, which will start phasing out at $35,000 in annual income for couples.

Meanwhile, couples earning up to $100,000 in annual income will be exempt from state tax on their Social Security income. Some Democrats campaigned on fully exempting that income from taxes.

Both the House and Senate DFL originally included a provision in their tax bills to require multinational corporations to report profits from subsidiaries, allowing Minnesota to collect taxes on those profits. But questions emerged about how much extra money the plan would raise for the state.

Democrats still raise roughly $1 billion in new revenue in the bill. Most of that money comes from conforming to a federal provision that taxes some profits from corporations with business overseas. Democrats also changed itemized deductions for higher-income earners.

Some renters and homeowners will see larger tax credits and refunds under the bill. Counties and local governments will each see an $80 million increase in aid, plus an additional one-time infusion of $300 million to help them cover public safety costs. Tribal nations will get $105 million in new aid over the next four years.

Republicans have criticized Democrats for removing an exemption for baby products such as strollers, car seats and cribs from the state's sales tax.

"With an $18 billion surplus, you can shake a couch cushion around here to find $7 million to help growing families in the state of Minnesota," said Sen. Julia Coleman, R-Chanhassen, who successfully added the exemption to the Senate tax bill only to see it removed later.