A proposal to eliminate the state tax on Social Security benefits has surfaced as part of a broader transportation bill in Minnesota, raising eyebrows at the Legislature. This proposal, included in HF5, is not typically part of transportation-related legislation, but it has gained momentum through the efforts of Rep. Jim Joy (R-Hawley), who introduced the bill.
The bill primarily focuses on changes to fuel taxes and the redistribution of revenue within the transportation advancement account, but it also aims to address tax relief for Social Security recipients. After a voice vote of approval, HF5 moved to the House Taxes Committee for further consideration.
Rep. Joy emphasized that the proposal aligns with promises made during his campaign. “This bill is making Minnesota affordable,” he said. “We campaigned two years ago promising the elimination of Social Security tax. That was not done. The Democrats did not do that. This bill will move that across the line, hopefully.”
The proposal includes several key provisions beyond the Social Security tax exemption. These provisions include:
- Repealing the 50-cent retail delivery fee on deliveries of $100 or more.
- Halting indexing of the motor fuels tax, which would freeze the gasoline excise tax rate at 31.8 cents.
- Reallocating some transportation-related state and regional sales taxes.
- Directing the Department of Public Safety to assess the motor vehicle registration tax, with an eye toward comparing it to rates in neighboring states such as North Dakota, South Dakota, and Iowa.
Rep. Joy noted that tax rates for vehicle registration in Minnesota are becoming an increasing concern for residents near North Dakota, who are moving across the border due to lower taxes. He hopes that this bill will not only prevent further outmigration but also attract residents back to the state.
Another noteworthy aspect of the bill is the amendment to the transportation advancement account’s distribution formula. Under the proposal, counties in the Twin Cities metropolitan area would no longer receive a share of these funds. The funds currently allocated to the metro area—about 36%—would be redistributed to the county state-aid highway fund, large cities and small cities assistance accounts, and the town road account.
Currently, Minnesota residents who earn below a certain threshold are exempt from paying taxes on their Social Security benefits. Married couples filing jointly with incomes under $108,320 and single filers making less than $84,490 qualify for this exemption. If the bill passes, the Department of Revenue estimates that the full elimination of this tax would cost the state’s General Fund approximately $390.7 million in fiscal year 2026 and $415.7 million in fiscal year 2027. It is expected to benefit around 211,700 tax returns, with an average tax reduction of $1,845.
While the bill has received some support from various groups, including lobbyists from grocery, retail, and propane industries, others have raised concerns. Representatives from the League of Minnesota Cities, Minnesota Small Cities, and Metro Cities have voiced apprehension about the proposal’s impact on municipal funding for road repairs. The elimination of the fuel tax indexing and the abandonment of a newly established funding source for roads could leave cities and townships without necessary resources for infrastructure.
Rep. Tom Murphy (R-Underwood), a former township supervisor, acknowledged the challenges faced by rural small cities and townships. “We do need to have streams of money that are dedicated to this,” he said. “But there have to be better ways that we can do this than this delivery fee.”
As the bill continues its journey through the legislative process, its fate remains uncertain. The ongoing discussions about the potential impact of these changes highlight the balancing act between tax relief and the funding needed to maintain critical transportation infrastructure.
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