hf1782 - rep. lenczewski tax reform proposal

8/14/2019 HF1782 - Rep. Lenczewski Tax Reform Proposal

1/16

Reforming Individual IncomeTax and Corporate Franchise Tax

Representative Ann Lenczewski

M o n d a y , M a r c h 1 6 , 2 0 0 9


2/16

P r o p o s e s m o s t s i g n i f i c a n t i n d i v i d u a l i n c o m e a n dc o r p o r a t e f r a n c h i s e t a x r e f o r m i n o v e r 2 0 y e a r s .

Highlights ofReform Proposal

I n c r e a s e s t h e p r o g r e s s i v i t y o f t h e M i n n e s o t at a x s y s t e m .

E l i m i n a t e s d o z e n s o f b u s i n e s s s u b s i d i e s a n d t a xe x p e n d i t u r e s t h a t a r e i n e f f e c t i v e , r e g r e s s i v e , o r

t h a t w e c a n n o l o n g e r a f f o r d .

R e p l a c e s t a x s u b s i d i e s t h a t d i s p r o p o r t i o n a t e l y b e n e f i t u p p e r - i n c o m e e a r n e r s w i t h i n c o m e t a xc u t s t h a t b e n e f i t e v e r y o n e .


3/16

What Does The Tax Incidence of Minnesotas Income Tax

Expenditures Look Like TODAY?3

$300,000,000

$350,000,000

$400,000,000

Tax Expenditures by Income (2006)

Educator Subtraction ($0.9 mil lion)

Elderly Subtraction ($1.3 mil lion)

Jobz Subtraction and Credit ($1.4 mil lion)

Active Military Service Subtraction ($4 mil lion)

Non-itemizer Charitable Contributions Subtraction ($5 mil lion)

Total MN Spending

rea chart.

$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

1 2 3 4 5 6 7 8 9 10Lowest to Highest Earners (sorted into 10 equal groups)

o

ng- erm are re m on

Tuition Subtraction ($13 mill ion)

K-12 Education Subtraction ($15 mill ion)

Social Security ($26 mill ion)

Marriage Credit ($53 mi llion)

Minnesota Tax-Exempt Bond Interest ($56 million)

All Itemized Deductions ($565 million)

Source: MN Depart of Revenue, Tax

Research Division, March 2009


4/16

Eliminating Tax Expenditures that are Ineffective,

Regressive, or MN can No Longer Afford

Whats Out:

Minnesota K-12 Subtraction

Individual Income Tax Benefits forJOBZ

Long-Term Care Insurance Credit

Bovine Tuberculosis Credit

Charitable Contribution Subtraction forNon Itemizers

Gain on Sale of Farm Property for

4

Organ Expense Subtraction Donation

Charitable Contribution Deduction

Foreign Sub-national Taxes Subtraction

Health Insurance Premium Credit

K-12 Education Credit

Mortgage Interest Deduction

Low-Income Motor Fuels Credit

Insolvent Taxpayers

Elderly Exclusion

Refundable Dependent Care Credit

Phase-out the Subtraction for Minnesota

Bond Interest

Americorps post-service educationbenefits


5/16

Making Minnesotas Income Tax System More

Progressive

Whats In:

Mortgage Interest Credit

5

Charitable Contribution Credit

Families Know Best Credit

Income Tax Rate Reductions


6/16

New Mortgage Credit

Under current law, two homeowners with identicalhouses and identical mortgages receive different tax

breaks the wealthy person gets more. The new creditaddresses the upside-down impact of the deduction andprovides an equal incentive to everyone.

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This new credit is accessible and fair to ALL taxpayers, regardless of incomeand whether or not taxpayer itemizes at the federal level.

Provides new tax credit equal to 7% of eligible mortgage interest; Taxpayerwith $10,000 of interest qualifies for maximum $420 credit.

Example: A family with two dependents and an adjusted gross income of$50,000 and $10,000 in mortgage interest would qualify for the maximum$420 credit. Under current law, this family would only be eligible to receivea $131 deduction.


7/16

New Charitable Contribution Credit

The new charitable contribution credit will enhance taxbenefits for Minnesotans who contribute more than 2 %of their income.

This new credit is accessible to ALL taxpayers, regardless of income andwhether or not tax a er itemizes at the federal level.

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The new credit equals 8 percent of charitable contributions in excess of thegreater of: 2% of the taxpayers adjusted gross income or $500.

Example: A family with two dependents and an adjusted gross income of

$30,000 that makes $5,000 in annual contributions would be eligible toreceive a $214 credit. Under current law, this family would eligible for a$120 deduction.


8/16

New Families Know Best Credit

This new credit gives families more discretion on how to

spend limited resources and does not limit credit tocertain expenditures.

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arge s ax re e o am es w c ren a nee mos .

The new refundable credit equals 10% of adjusted gross income over$14,000, up to a maximum of $200 per child.

Example : A family with one dependent, an adjusted gross income of$20,000 and no K-12 expenses or dependent care expense would receive a$200 credit. Under current law, this family would not be eligible to receive acredit.


9/16

New Income Tax Rate Reductions

Married Joint Current Law New ProposedRate

Income Bracket

Income Tax Relief for All Minnesotans

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First 5.35% 5.00% $0 to $33,220

Second 7.05% 7.00% $33,221 to $131,970

Third 7.85% 7.85% $131,970 and above


10/16

Eliminating Business Subsidies that Create

Winner and Losers

Whats Out:

Eliminate the 80% reduction for foreign income

Foreign Royalty Subtraction

10

Research and Development Credit

International Economic and Biotech Zone Incentives

Employer Transit Pass

Metropolitan Airports Exemption

Corporate Franchise Tax benefits for JOBZ


11/16

Keeping and Growing Jobs in Minnesota

Whats In:

100% Single Sales Factor this year

Full Federal Conformity to Section 179

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Expensing


12/16

Keeping and Growing Jobs in Minnesota

Eliminates the Jobs Tax (deletes payroll factor in the CorporateFranchise Tax)

12

,

to Section 179 Expensing.


13/16

Helping Minnesotas Small Businesses

Tax Cuts for Businesses and Farmers through Full Federal

Conformity to Section 179 ExpensingFull Federal Conformity to Section 179 Expensing to maximize business investmentin Minnesota. The last time Minnesota had full federal conformity to Section 179expensing was in 2005.

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Tax Year Current Law MaximumDeduction

Current LawStart of Phase-out

NewMaximumDeduction

Proposed Start ofPhase-Out

2009 & forwardconforms tofederal law

$25,000 $100,000 $250,000 $800,000

Full Federal Conformity simplifies and streamlines administrative bookkeeping forbusinesses and promotes taxpayer compliance.


14/16

Giving Minnesota Companies a Competitive Advantage

Swift Elimination of the Jobs TaxIn 2005, the Legislature enacted an eight year phase-in of the single sales factor for

corporate income tax apportionment by 2014.

Allows 100% single sales factor for corporate income tax apportionment this year.

Makes Minnesota more competitive with 18 other states that have or are scheduled

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Tax Year Current Law Sales Factor Proposed Sales Factor

2009 84% 100%

2010 87%

2011 90%

2012 93%

2013 96%

2014 100%

to have 100% sales on apportionment formulas. (Source: Future State Business Tax

Reform, Ernst & Young, December 2007, page. 10.)


15/16

Making Minnesotas Tax System More Progressive

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Adjusted GrossIncome

% of Tax Paid, Current Law % of Tax Paid, Proposal

Current Law v. Proposal

Under $50,000 21.4% 20.1%

$50,000 to $99,999 26.4% 26.1%

$100,000 to $499,999 32.7% 33.9%

$500,000 and up 19.5% 19.9%

Source: House Research Department, March 2009


16/16

House Research Short Subjects

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Single Sales Apportionment

http://www.house.leg.state.mn.us/hrd/pubs/ss/ssappss.htm

Section 179 Expensing

http://www.house.leg.state.mn.us/hrd/pubs/ss/sssec179.htm

hf1782 - rep. lenczewski tax reform proposal

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