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 Working Family Credit effectively reaches those communities where good jobs are harder to find, including parts of Greater Minnesota and communities of color.
- 48 percent of households currently receiving the credit are in Greater Minnesota, and in 12 Greater Minnesota counties, at least one in six tax-filing households receive the credit.
- While people of color made up about 18 percent of the state's population, roughly 34 percent of those eligible for the credit in 2015 were people of color.
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 11.5 percent or more of their incomes in state and local taxes.
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 interest 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." Three reasons to improve the credit for these Minnesotans are: these workers receive credits that are very small; these workers lose eligibility for the credit at very low incomes (for example, a single Minnesotan working full-time, year-round earning minimum wage makes too much to qualify for the credit); and arbitrary age requirements mean independent workers under age 25 cannot qualify.
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 requirements for households without children so that younger, independent workers (ages 21 to 24) can qualify for the credit.
Both Governor Mark Dayton's budget proposal and Senate File 28 (chief author Senator Ann Rest)/House File 516 (Representative Diane Loeffler) contains all three of our recommended improvements. The bill would 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 $46 million in increased tax credits to about 372,000 Minnesota households in FY 2018. The average tax cut is $124.
These proposals are essentially the same set of improvements that were in the 2016 omnibus tax bill passed by the Legislature but that was not signed into law. Governor Dayton has included some kind of Working Family Credit expansion in his budget proposals since 2015.
The Senate omnibus tax bill (Senate File 2255, Chamberlain) includes a provision that will increase access to the Working Family Credit for tribal members who live and work on the reservation. These provisions were introduced as House File 513 (Swedzinski)/Senate File 646 (Bakk).
Policymakers will work out their differences on these and other tax issues in the tax conference committee.
- Who Receives the Working Family Credit?
- Percent of Households Receiving the Working Family Credit (map)
- We need to expand the Working Family Tax Credit - Isanti County News letter to editor
- 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.