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New Entitlement Program Hits Low-Income Workers with 12% Tax Increase, Limits Flexibility for Minnesota Job Providers and Employees

Jan 30, 2019 by AFP

BURNSVILLE, MN – Americans for Prosperity-Minnesota (AFP-MN) today announced their opposition to HF5, which would create a new entitlement program funded by a payroll tax on all employees and employers across the state. The bill would in effect lead to a 12% tax hike on the lowest income tax bracket, the very people who can least afford it.

AFP-MN believes the free-market – not government mandate – is the best solution for creating compensation and benefit packages that meet the needs of both employers and workers.

AFP-MN sent the members of the House Labor Committee a key vote letter calling on members to vote “No” on HF5.

View Key Vote Letter Here

AFP-MN State Director Jason Flohrs issued the following statement:

“Punishing businesses and their employees with new taxes is bad enough, but even worse when it supports bad policy. Every employer and every worker at all income levels will be forced to pay this tax, which supports a benefit for only a small percentage of the state’s workforce. Yet, over time, entitlement programs inevitably expand, and this program will be no different, requiring even more taxes that disproportionally hurt those who can least afford it.

“A 12% tax increase on the lowest bracket is the smallest this tax increase could be. Language in the bill would allow the payroll tax to automatically increase with little to no accountability as more spending is deemed necessary by unelected bureaucrats in charge of the program.

“Given the state’s terrible record in effectively administering new taxpayer-funded entitlements (MnSure), developing new IT/management systems (MNLARS), or providing adequate oversight for eligibility for existing government programs (Medicaid waste, fraud, and abuse), legislators should protect taxpayers, employers, and employees by opposing this unworkable bill.

“In today’s ultra-competitive employment environment, businesses and their employees should be free to design compensation packages that work best for their company and workers, not big government.”

Background:

Though HF5 as introduced and as voted on today included only placeholders for specific tax rates, a recent Star Tribune article referenced “a 0.31 percent payroll tax on both employers and employees.” However, research shows that employees will effectively end up paying both their own and the employer’s share of this type of tax, as the non-partisan Tax Foundation has laid out. A .62% payroll tax increase on employees in the state’s bottom tax bracket (with an income tax rate of 5.35%) results in an overall 11.58% increase to an employee’s tax burden.