These are remarkably tumultuous political times on the federal, state, and
local levels. There is a lot for all of us to try and track, from the
resignation of state and federal officials because of sexual harassment
(including the announced resignation yesterday of Sen. Al Franken sometime in
the coming weeks), to proposed significant tax changes on the federal level,
continued movement on health care, and so much more. I wanted to take a moment
and touch on two issues of state concern.
November Budget Forecast
On Tuesday, Minnesota Management and Budget announced the November budget
forecast, projecting a deficit of $188 million. Nearly all of that shortfall
($178 million) is a result of the inaction by Republicans in the US Congress to
pass funding for the Children’s Health Insurance Program (CHIP). In addition,
our budget deficit grows to $302 million when other ongoing obligations, such
as funding the legislative branch, are taken into consideration. The
legislative funding was vetoed by Governor Dayton earlier this year in an
effort to get Republicans to negotiate on the tax cuts for corporations and the
wealthy they passed. The Governor’s veto occurred for the exact reason that
these tax cuts for corporations, the wealthy, and big tobacco would send our
state budget into deficit, and they did. What’s worse – the deficit is set to
grow over the next few years to $586 million.
Going into the 2017 session, Minnesota had a $1.6 billion budget surplus. In
less than a year, the Republican budget plan turned that surplus into a
deficit. This is unacceptable.
This irresponsible budgeting, in addition to the Republican federal tax bill,
threaten Minnesota’s economic stability and the livelihood of Minnesota
families. As we head toward the next legislative session, convening on February
20, we should be cautious in order to ensure economic stability now and in the
future.
I will continue pushing for a plan that ensures Minnesota’s budget works better
for everyone, not just the wealthy. I’m also continuing to push our federal
elected officials to keep fighting for essential programs like the Children’s
Health Insurance Program funding.
Federal Tax Bills Being Debated
One of the many elements of risk and uncertainty expressed by economists who
created the budget forecasts for the state was the uncertainty around the
current debate of federal tax legislation in the US House and Senate. The
impacts of this legislation are highly uncertain, but I can say, almost without
doubt, that whichever version of the Republican-controlled House and Senate tax
bills are passed, it will have astounding effects on working and middle class
families in Minnesota and across the country. See for example this New York
Times analysis of how the elimination of state and local tax deductions (SALT)
will have detrimental impacts on places like Hennepin County, where tax payers
may lose their ability to deduct state income taxes, state property taxes, and
other deductions.
This isn’t just a big hit to those who own expensive property, it’s also a
significant blow to low income and middle class families by increasing their
taxable income through the repeal of many deductions and exclusions.
We know a little more about the version of the tax bill passed by the U.S.
House. Preliminary estimates are that you will actually pay more in Minnesota
taxes as a result of this federal bill. That is because the proposal eliminates
many current tax deductions and credits that lower your federal taxable income,
the starting point for your Minnesota taxes. Very preliminary projections
suggest that Minnesota state revenue could increase by as much as $700 million
annually if the U.S. House bill were to become law. Here is a list of some of
the itemized deductions that would be modified or eliminated entirely in the
House bill:
• Repeal the medical expense deduction.
• Repeal the state income and sales tax deduction.
• Limit the property tax deduction to $10,000 ($5,000 for married separate
filers).
• Repeal the personal property tax deduction.
• Disallow the mortgage interest deduction for debt secured by a second home
and reduce the limit on allowed indebtedness from $1 million to $500,000.
• Increase the limit on charitable contributions from 50% to 60% of Federal
Adjusted Gross Income.
• Repeal the deduction for casualty or theft losses, with exceptions for
hurricane-related losses.
• Repeal the deduction for unreimbursed employee expenses.
• Repeal the deduction for tax preparation expenses.
• Repeal the overall limit on itemized deductions.
• Repeal deduction for moving expenses (other than for military service
members).
• Repeal deduction for alimony payments and the corresponding inclusion of
received alimony.
• Repeal exclusion for dependent care assistance programs, beginning in tax
year 2023.
• Repeal exclusion for adoption assistance programs offered by an employer.
There is a lot to sort through, but some areas of particular concern are: (1)
The elimination of the medical expense deduction, which would harm many seniors
and people living with disabilities. (2) The elimination of the mortgage
interest deduction for second properties (i.e. your family’s lake cabin), (3)
The repeal of the deduction you can currently take for expenses incurred as an
employee not reimbursed by your employer. Many school teachers itemize the cost
of classroom supplies that they purchase out of their own incomes.
Additionally, the bill also doubles the estate tax deduction to $11 million
before eliminating it in six years and eliminates the alternative minimum tax
that exists to ensure that the wealthy don't use so many different tax
strategies that they avoid paying income taxes entirely.
I’m particularly concerned about the negative impact this bill could have on
the next generation’s path to the middle class through education. The
elimination of the student loan interest deduction will be particularly harmful
for younger taxpayers while the taxation of graduate student tuition waivers as
personal income will make graduate school more expensive. Since these waivers
are not cash they provide the student with no money with which to pay the new
taxes. This is a particular concern, given the important place that the U of M
plays in our state’s economy. Lastly the proposal to tax college and university
endowments could reduce student access to scholarships that make higher
education more affordable.
Take Action – Call Lawmakers
If you’re as concerned as I am by the sound of these proposed tax provisions,
call our lawmakers and tell them what you think. This tax bill is not done yet.
The House and Senate have to pass another compromise version through the
conference committee and repass that bill in both the House and Senate.
US CAPITOL SWITCHBOARD: (202) 224-3121
We can’t stop fighting these horrible ideas and putting pressure on our
lawmakers, and I’ll keep fighting these bankrupt economic ideas at the Capitol
in St. Paul. Please let me know if you have any questions. I can be reached at
651-296-0173 or <email obscured> .
Sexual Harassment
The #MeToo movement has put the issue if sexual harassment center stage. The
resignation of Senator Franken this week and of two legislators last week has
given the issue a particularly high profile in Minnesota. While I could speak
to some of the political aspects of the issue, instead I want to remember the
women who have been victims of this harassment. I know that for many
victim/survivors having cases of abuse and harassment detailed in the media can
bring back a flood of difficult memories. If you are looking for support, the
Sexual Violence Center in Minneapolis (SVC) has a crisis line: 612-871-5111 and
online resources.
https://www.sexualviolencecenter.org/ Statewide referrals:
http://rapehelpmn.org/
Thanks,
Jim Davnie
State Representative
Cooper resident