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More than 1.2 million Minnesotans are in line for tax breaks under a measure Gov. Mark Dayton signed Friday, spreading $444 million in permanent tax relief around the state and giving DFLers who control the Capitol an election-year accomplishment to sell to voters.
Working families, married couples and parents who adopted children are among the biggest winners. Some college students with loan debt, low-income families and those who lost their homes to foreclosure may also be eligible for tax relief, and the bill deletes a handful of sales taxes on businesses that Dayton and the Legislature approved last year.
“This is a monumental victory for the DFL leadership in the Legislature and just shows that we have a balanced approach to Minnesota,” Dayton said during a celebratory news conference with DFL House and Senate leaders. “That’s what people wanted.”
The House and Senate passed the bill overwhelmingly on Friday. Nearly every Republican joined most DFLers in backing it, but GOP members criticized the majority for a provision in the bill that adds $150 million to state budget reserves. That brings the state’s rainy-day fund to more than $800 million, but Republicans said that money should go back to taxpayers too.
“They will spend it more wisely than government every day of the week,” said Sen. Julianne Ortman, R-Chanhassen.
The state’s budget reserves are far below what is recommended by national credit-rating agencies, which have downgraded the state’s credit rating over the low reserves along with past legislation that balanced the state budget with accounting shifts and borrowing.
Sen. Rod Skoe, chairman of the Senate Taxes Committee, said a heftier reserve fund would help lawmakers avoid a repeat of the past decade, when the state budget was plagued by frequent deficits that provoked the shifts and borrowing as well as spending cuts.
“You can’t run a state well when you’re going from one crisis to another,” said Skoe, DFL-Clearbrook. “I think we made a really major step today toward building the reserve as a shock absorber against that.”
The $444 million in tax relief amounts to slightly more than a third of the $1.2 billion budget surplus that greeted lawmakers when the session started.
In time for 2013 taxes
Much of the tax relief is delivered by conforming to recent changes in federal tax law, and about $57 million of it is retroactive to taxes paid in 2013. Revenue Commissioner Myron Frans said his staff would work through the weekend to apply the tax cuts so that 2013 filers can still benefit in advance of April 15. “If you have not filed your tax return yet, we would advise you to wait until Monday,” Frans said.
The Department of Revenue will contact Minnesotans who already filed but are now eligible for refunds, Frans said, adding that no one should have to file an amended return. About half of Minnesotans have already filed their 2013 tax returns. Frans scheduled a Monday news conference to share information about how those who have not yet filed can access the new tax breaks.
Many other tax reductions won’t apply to 2013. An increase in the standard deduction for couples won’t start until people file taxes next year, at which point married couples would average $115 in savings.
The tax bill passed by a vote of 58-5 in the Senate and 126-2 in the House. But it had a rocky journey to that point, fostering open dissent between the Capitol’s top DFLers earlier in the week when Dayton publicly blasted DFL lawmakers for not getting the bill to his desk more quickly. Dayton said he didn’t want lawmakers to wait so long that some Minnesotans would be forced to amend their returns.
After Dayton unloaded on legislative DFLers, House Speaker Paul Thissen quickly revealed that Senate Majority Leader Tom Bakk had been holding up the bill — which the House first approved two weeks ago — because he wanted the House to approve controversial plans for a new Senate office building on the Capitol campus.
Both the governor and the House DFL majority are on the ballot this fall. That made tax relief more urgent for them than for senators, who aren’t up for re-election until 2016.
Dayton and Thissen insisted tax relief and the office building plans should not be linked, and Bakk capitulated. But then Senate Republicans forced another one-day delay on Thursday, pushing the vote to the end of the week. Still, Frans said he did not believe the delays would hurt anyone’s eligibility for tax breaks.
The bill’s enactment also headed off a much-criticized new sales tax on warehousing services that was set to take effect in about a week. Democrats also repealed sales taxes passed last year on telecommunications equipment and repair. The business tax cuts amount to $231 million of the $444 million in total tax relief.
Republicans mocked DFLers for rushing to undo tax hikes they passed less than a year ago. The sales tax increases incurred blistering criticism from the state’s business community.
“It reminds me of that movie ‘The Hangover,’ ” said Rep. Pat Garofalo, R-Farmington. “Democrats hiked a bunch of taxes, and then woke up the next morning and said, ‘Oh no, what did we do?’ ”
Staff writer Rachel E. Stassen-Berger contributed to this report.