Emmy Treichal says $201 more a year would mean a lot to her.
“I would save it,” the 89-year-old St. Paul resident said. “I always have a project I am saving for.”
That $201 will be the average amount of income taxes Social Security recipients in Minnesota will save under a new law that reduces taxes on the federal retirement program’s benefits.
Calling herself “a depression kid,” Treichal said she learned to save as a child, when money really was tight. The twice-widowed woman said she saved for years to build a garage for her car — “I am tired of scraping it off every morning” — and one should be completed next to her modest home before the next frost.
Mary Jo George of AARP, the organization for senior citizens, said the group supported reducing tax on Social Security because it “is one way to give people a raise, to give them a little more income.”
The new law especially will help lower and middle income retirees, House Tax Chairman Greg Davids, R-Preston, said.
While the average savings is pegged at $201 annually, some people could get a lot more. The law allows married couples that earn up to $77,000 a year to take up to $4,500 off their income tax bills. Individual filers with earnings up to $60,000 may cut their taxes $3,500. Higher earners, couples making up to $99,500 and individuals with up to $77,500 incomes, will receive smaller benefits.
Tax preparers, including volunteers who help many older Minnesotans, will handle figuring out how much each taxpayer receives.
While Treichal said the tax cut is significant, Minnesota Revenue Commissioner Cynthia Bauerly said that “it really is going to depend on the individual situation.”
People filing more than 280,000 returns will pay less tax under the law the 2017 Legislature passed.
Over the next 10 years, Minnesota will lose $750 million in revenue because of the change, Bauerly said, and it will continue to grow as the wave of baby boomers retires and begins collecting Social Security.
Davids and Treichal said it only is fair to reduce taxes on Social Security benefits since recipients have paid taxes on their earnings for a lifetime.
“It is supposed to be their money,” Davids said.
While Davids said he would like to eliminate the tax totally, even many senior citizens advocates opposed eliminating the tax, saying that could cut state revenue so much that programs designed to help the elderly could suffer.
“Tax cuts are a balancing act, and fairness is a constant concern,” Rep. Paul Marquart, D-Dilworth, said.
Tom Counters of La Crescent, in far southeastern Minnesota, spoke to legislative committees earlier this year supporting Social Security tax breaks.
He called himself a “refugee from that mystical land to the south known as Iowa. This meant my first experience with taxation of my Social Security benefits occurred in 2013, when my tax return involved seven months in Iowa and five months in Minnesota. Imagine my surprise when I discovered my tax bill for Iowa was zero dollars while I owed Minnesota close to $2,000.”
Counters said the states that tax Social Security, including Minnesota, are “the 10 least friendly states when it comes to the total tax bill for retirees.”
George said even small amounts of added money help the poorest retirees, given the rising costs of things like prescription drugs, food and energy bills.
Like Treichal, Counters said any extra money seniors receive from the tax cut will go to good uses. “This would not result in an increase in yacht or European cruises for this group, but it would mean that living standards would improve and more money would be infused into the Minnesota economy. I am sure most legislators would feel both ends are positive.”