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MN2020 - New Tax Act Provides Direct Property Tax Relief
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New Tax Act Provides Direct Property Tax Relief

June 12, 2013 By Jeff Van Wychen, Fellow and Director of Tax Policy & Analysis

Minnesota conservatives sent out a recent e-mail complaining about the LGA and property tax relief in the newly passed 2013 omnibus tax act (House File 677, chapter 143), saying “most of the money will be spent by local governments, with very little actually flowing to homeowners in the form of lower property taxes." Today’s article focuses on the significant direct property tax relief contained in the 2013 tax act. I'll address the accusation that too much money is going to local governments in next week's article. 

To replace the property tax relief lost when conservatives successfully killed the Homestead Credit during the 2011 special legislative session, the 2013 tax act made a $119.6 million (35 percent) increase in the homeowners’ property tax refund (PTR), also known as the “circuit breaker.” In addition, the 2013 tax act increased the renters PTR by $15.5 million (8 percent) to replace a portion of the cut to that program also enacted at conservative insistence during the 2011 session.

The increases in the homeowners’ and renters’ PTR will reduce taxes paid in 2013, but will not be paid out until the second half of 2014, which falls into state fiscal year (FY) 2015. Thus, the $119.6 million increase in the homeowner PTR and the $15.5 million increase in the renters’ PTR will not have an impact until the second year of the state’s FY 2014-15 biennium and thus only one year of the cost of both programs will appear in the next two year biennium. Combined with other refund increases, the total increase in direct PTR payments comprise one-third of the estimated $411 million increase* in property tax aids and credits for FY 2014-15 in the 2013 tax act.

Two facts need to be made clear about both the homeowners’ and renters’ PTR. First, both target taxpayers who have high taxes relative to their income and thus provide tax relief to those who need it most. Both PTR programs are powerfully progressive and—dollar for dollar—do more to reduce tax regressivity in Minnesota than any other program in law. Second, tax relief distributed through the homeowners’ and renters’ PTR goes directly to property taxpayers and does not pass through the hands of local governments. In short, they are 100 percent property tax relief.

If we focus strictly on the homeowners’ refund, in 2011 the conservative controlled Senate passed an omnibus tax bill that contained a projected FY 2015 homeowner PTR increase of $49.6 million, which at the time they touted as significant homeowner tax relief. Fast forward to 2013. A homeowner PTR increase—enacted by legislative progressives over conservative opposition and providing two and a half times more tax relief than the proposed 2011 homeowner PTR increase—is dismissed by Minnesota conservatives as “very little.” Perhaps a double standard at work?

The enhancements to the homeowner PTR enacted during the 2013 session—in isolation from all of the other property tax relief in 2011 tax act—will reduce statewide net homestead property taxes by nearly four percent based on 2013 data. In fact, the 2013 tax act is providing the largest single year increase in homeowner PTR funding since the program was enacted in 1975.

In addition to 2013's direct property tax relief increases, a portion of the aid provided to local governments will also translate into tax relief for homeowners and other property taxpayers. More on this in next week's article.


 

*According to the fiscal tracking spreadsheet from the Office of Senate Counsel, Research, and Fiscal Analysis, the 2013 omnibus tax act will provide a $411 million increase in property tax aids and credits during the FY 2014-15 biennium. However, this total may be revised based on a reinterpretation of education funding provisions in the act.
 

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4 Comments:

  • Pam Ellison says:

    June 20, 2013 at 9:48 am

    Thanks for the explanation. But, can anyone else see the need to simplify the property tax code?  How complicated should it have to be?  Same goes for the income tax code as well.  Simplify it.

    My two cents for the day.

    Enjoy the day!

    Pam Ellison

    • Bernice Vetsch says:

      June 20, 2013 at 10:21 am

      I used to assume that the entire circuit program was contained in adjustments to the property tax made by means of refunds based on income and tax paid.  My state rep, however, told me it’s much more complicated and has several aspects—and it is and does, from what I read at that time (1 to 2 years ago) but I doubt that I understand it completely. 

      A new book on the Minnesota Miracle was published last year which apparently does explain it very fully. Perhaps MN2020 could publish a short summary in lay terms??

      • Jeff Van Wychen says:

        June 20, 2013 at 12:21 pm

        Bernice:
        House Research publishes a good (and fairly brief) description of the circuit breaker program, which can be found at: http://www.house.leg.state.mn.us/hrd/pubs/ss/sshptrp.pdf .  This document was published last October and does not include a summary of the changes made during the 2013 session.  However, while the 2013 tax act changed the specifics of the circuit breaker, it did not change the fundamentals.

        • Bernice Vetsch says:

          June 20, 2013 at 6:55 pm

          Thanks, Jeff.  I will read it carefully.