ST. PAUL, Minn. — The Minnesota House passed a bill Monday matching the state's tax code with new federal tax cuts, the first step in lawmakers' primary task this year of simplifying next year's tax filing for Minnesota residents while forestalling incidental tax hikes.
Sweeping tax cuts passed by Congress last year has made the routine of syncing state and federal tax codes a more daunting task for Minnesota lawmakers. A proposal to do so cleared the House on Monday on a 90-38 vote, with 13 Democrats joining Republicans in approving the bill.
But lawmakers still have plenty of work to do to get it done in the remaining three weeks of the session. The Republicans who control the Senate haven't yet unveiled its tax proposal — they were set to do so Tuesday morning. And the GOP Legislature's approach will be drastically different than Democratic Gov. Mark Dayton, who has proposed redirecting much of the excess tax revenue into new and expanded tax credits for Minnesota families.
Rep. Greg Davids stressed the need to finish before the mandatory May 22 adjournment, saying it would be the "disaster of all disasters" if lawmakers wait until the Legislature reconvenes next January. Dayton earlier this month said he would not call a special session for unfinished work.
"It has to be done now," said Davids, who chairs the House Taxes Committee.
Dayton's plan would redirect much of the additional revenue from conforming state taxes to federal law to Minnesota families by expanding existing tax credits and creating new ones —while leaving some Minnesota businesses with a larger bill.
Meanwhile, the House tax bill approved Monday will cut taxes for 2.1 million Minnesota residents but Davids has acknowledged about 148,000 tax filers would see an increase. It would gradually lower income taxes for Minnesota residents in the second tax bracket — for a single earner making $26,000 to $85,000 a year — from the current rate of 7.05 percent to 6.75 percent by 2020. Standard deductions would also increase in Minnesota from $13,000 for a married couple to $14,000.
Those tax breaks could be offset for some earners by the loss of certain tax deductions on work-related expenses, union dues, charitable deductions and property loss expenses from fires and some other natural disasters.
House Democrats argued the tax bill favors corporations over lower- and middle-class residents, repeating a common Democratic criticism of the federal tax bill passed late last year. They pushed to shift more of the tax burden, including by pulling in more foreign income and holdings from U.S.-based corporations, a process known as repatriation.
"It is not right that this money has been taken from us for all these years," said Rep. Frank Hornstein, a Democrat from Minneapolis. "Now we have an opportunity to repatriate it, and we should take advantage of that."
But Davids said he worries companies could challenge the federal order, and it'd be easier for the state to come up with $50 million compared to more than $150 million.
"I think we do a lot of good things with the money that comes from the money being repatriated," Davids said.