Millions of average Minnesotans are facing a tax increase this year as a result of federal tax changes approved in December and the Legislature seems unwilling to heed Gov. Mark Dayton’s proposal to fix the problem.
Here’s the problem: Federal tax changes approved by Congress and President Trump doled out huge tax cuts for corporations and the wealthy. Indeed, the tax cut for corporations alone comprised 92 percent of the total tax savings in the plan. The Congress and the President paid for it, in part, by exploding the federal deficit, but also by reducing or eliminating a long list of tax deductions that typically benefit the middle class. While the federal tax bill also trimmed tax rates for middle and lower income Americans, the savings for most Americans are pretty minimal, amounting to a few hundred dollars a year.
Those modest reductions will disappear in many cases once the impact of some of the other tax changes become apparent next year when Minnesotans prepare their 2018 tax returns.
Here are some of the tax deductions that Minnesotans stand to lose without legislative passage of the governor’s proposal:
Expenses paid for work– Employees are currently allowed to deduct certain expenses related to their job, which are not reimbursed by their employer. About 111,000 Minnesotans benefit from this deduction, saving an average of $419 annually.
Reducing home ownership costs – Gov. Dayton’s tax proposal would protect deductions Minnesotans count on to keep the costs of homeownership more affordable. It would protect a property tax deduction that currently benefits roughly 40,000 Minnesotans, saving an average $502 a year. It would also preserve a deduction for major casualty losses, such as a house fire, that saves families that faced tragedy an average of $16,400.
Tuition payment deductions— About 27,000 Minnesotans used to benefit from deducting a portion of their tuition payments for college or career training but will lose that deduction as a result of the federal tax law. The governor’s plan would extend the deduction, saving students an average of $96 per year.
Mortgage insurance deduction— It’s not a huge item, but for 70,000 homeowners in the state, it represents an average savings of $94 a year.
One might think that a plan to cut taxes would be easy to pass in the Republican-led state Legislature. But these aren’t the kind of tax cuts favored by Republicans. The tax savings from the governor’s proposal will go overwhelmingly to the middle class, not the wealthy taxpayers and corporations favored by GOP lawmakers.
And Republicans are, no doubt, hesitant to acknowledge the downsides of the federal tax changes their party’s national leadership passed late last year. The legislation was clearly designed with the 2018 midterm elections in mind. The tax rate changes meant most Americans are seeing a little bit more in their paychecks this year and they won’t see the impact of the lost tax deductions until they prepare their 2018 tax return sometime in early 2019. That’s when many Americans will realize they’ve been had. Legislators should put Minnesotans first, by fixing the problem as the governor proposes. Minnesotans don’t need unpleasant surprises when the next tax season rolls around.