Tax committee considers tax break on day care costs

“Putting a little money back into the pockets of Minnesotans” has been a frequently heard phrase this legislative session. Many a bill has been presented in committees with those words, but the question almost invariably arises as to whether the bill would be the best way to go about doing that.

Such was the case Thursday with HF495, a bill sponsored by Rep. Nolan West (R-Blaine) that would establish an individual income tax subtraction for day care costs paid to a licensed child care center.

Mind you, there already is a federal income tax exclusion for dependent care assistance and a refundable state dependent care credit, but West’s bill would create a subtraction for day care costs paid in excess of the amount of dependent care assistance the taxpayer excluded from federal gross income.

The House Taxes Committee laid the bill over for possible inclusion in an omnibus tax bill.

Presenting the bill on behalf of West was Rep. Wayne Johnson (R-Cottage Grove).

“There have been many conversations about how we get more people into day care and get more centers,” Johnson said. “But while that is going on, we still have families that are having issues paying the bills. This addresses that. … This takes off the limits that are in place now.”

But St. Paul resident Annell Velasco, a mother of three, doesn’t see the bill as the right solution to rising day care costs.

“This bill is a small patch around the edges of a system that needs structural reform altogether,” Velasco said. “We cannot solve an infrastructure failure with a line-item gesture. Child care needs to be funded as the public good it provides, not be thrown a small bone that disproportionately helps the folks who make more money.”

The Revenue Department estimates that the changes in HF495 would reduce the General Fund by $52.2 million in Fiscal Year 2027 and $109.5 million in the next biennium. It also estimates that about 81,700 returns would see an average decrease in tax of $639 in tax year 2026.

Rep. Andy Smith (DFL-Rochester) suggested the Legislature seek an approach more targeted to those most burdened by child care costs, and Rep. Liz Lee (DFL-St. Paul) argued that the bill’s cost would be better channeled toward an expanded child tax credit.

But Rep. Chris Swedzinski (R-Ghent) disagreed.

“Day care costs are expensive no matter how much your income is,” he said. “We need to be focused on the reality that allowing people to keep their own money is not a giveaway.”

Yet the committee’s co-chair, Rep. Aisha Gomez (DFL-Mpls), said, “Spending this sort of money in an expansive, expensive, untargeted way that will address one part of one of the many complex, interacting failures of this system is, to me, spending a lot of money on something that will make so little impact on the overall issue.”