Prioritizing Everyday Minnesotans in State Tax Decisions
Supporting Minnesotans' work efforts should be a priority in the state's tax and budget decisions. The Minnesota Budget Project supports strengthening the Working Family Credit so that working people across the state can better make ends meet, and to get children off to a stronger start in life. Expanding the Working Family Credit would also make Minnesota's taxes fairer.
Every day, hard-working Minnesota families struggle to make ends meet. Tight family budgets make it hard for Minnesotans to pay for child care, education and training to build their skills, reliable transportation and other things they need to succeed in the workplace and get ahead.
Fortunately, there is a successful tax policy that focuses on working Minnesotans and their families. The Minnesota Working Family Tax Credit encourages and supports work, makes Minnesota's taxes fairer, helps working people across the state meet their basic needs, and gets children off to a stronger start. In 2014, about 346,000 households received the Working Family Credit, which is more than 12 percent of all tax-filing households. The Minnesota families receiving the Working Family Credit live all across the state: 48 percent live in Greater Minnesota and 52 percent live in the seven-county Twin Cities metro area.
The Working Family Credit offsets a portion of the substantial state and local taxes, such as sales taxes, that lower-income working people pay. Even including the Working Family Credit, on average, lower-income Minnesota households pay around 11 percent or more of their incomes in state and local taxes; that's a larger percentage than what the highest-income Minnesotans pay.
The Working Family Credit is Minnesota's version of the federal Earned Income Tax Credit (EITC) and builds on the EITC's documented success in supporting work, reducing poverty and improving the health and education of children.
There is also bipartisan momentum at the federal level to improve these credits for workers without dependent children. As they are currently structured, these credits don't do as much to support the work efforts of single people and married couples without dependent children - sometimes called "childless workers." It's time to address concerns with the credit, including: these workers receive credits that are very small; childless workers lose eligibility for the credit at very low incomes (for example, a Minnesotan working full-time, year-round earning minimum wage makes too much to qualify for the credit); and arbitrary age limits that mean independent workers under age 25 cannot qualify.
An expanded Working Family Credit also can play a role in narrowing Minnesota's stark racial income disparities. While people of color make up around 18 percent of Minnesota's population, about 34 percent of Minnesota households eligible for the Working Family Credit are people of color.
The Minnesota Budget Project calls on policymakers to:
- Increase the size of the Working Family Credit that Minnesota households can receive;
- Make more households eligible for the credit by increasing the amount that Minnesotans can earn and still receive the credit; and
- End arbitrary age limits for households without children so that younger, independent workers (ages 21 to 24) can qualify for the credit.
The 2016 tax bill passed by the Legislature on May 22 contains all three of our recommended improvements. The bill incorporates provisions from Senate File 2586 (Senator Ann Rest)/House File 3589 (Representative Greg Davids) that increase the size of the credit for most currently eligible households; increase the incomes households can earn and receive the credit; and lower the age requirement for workers without dependent children to 21 years. The bill would provide $49 million in tax reductions to about 386,000 Minnesota households in FY 2017. The average tax cut under this bill is $126. Citing a serious drafting error in another part of the tax bill that was discovered after the legislative session had ended, Governor Mark Dayton did not sign the tax bill into law.
Governor Dayton has included some kind of Working Family Credit expansion in his budget proposals since 2015. His tax plan released earlier this month includes the Working Family Credit provisions from the 2016 tax bill.
- Who Receives the Working Family Credit?
- Percent of Households Receiving the Working Family Credit (map)
- Prioritize Working Families by Strengthening the Working Family Credit
- Everyday Minnesotans are the focus of Dayton 2017 tax plan
- Tax credits for working Minnesotans an important area of common ground
- EITC and Child Tax Credit Promote Work, Reduce Poverty, and Support Children's Development, Research Finds, Center on Budget and Policy Priorities
- States Can Adopt or Expand Earned Income Tax Credits to Build a Stronger Future Economy, Center on Budget and Policy Priorities
- The Federal Earned Income Tax Credit and Minnesota Working Family Tax Credit, House Research
- Minnesota Budget Project blogs about the Working Family Credit
Staff contact: Nan Madden, Minnesota Budget Project Director, 651-757-3084
Our work on expanding the Working Family Tax Credit in 2017 is supported in part by a grant from the Emma B. Howe Memorial Foundation of The Minneapolis Foundation.