DFLers have moved into a tax-cutting frenzy at the State Capitol.

Gov. Mark Dayton says he now wants to cut taxes by more than $616 million, up from the $500 million initially proposed by House DFLers.

The new proposal, part of the governor’s budget released Thursday, would offer tax relief among married couples, lower-income working families, college students, day-care users and small employers.

“Our improving economy has greatly improved the state’s budget forecast, giving us the opportunity to put more money in the pockets of Minnesota families and businesses,” Dayton said.

House DFLers, meanwhile, pushed their tax package to a floor vote on Thursday, sending it to the Senate in record time by a vote of 126-2.

“We want to make sure that we get that tax relief out to Minnesotans in as timely a manner as possible,” said House Speaker Paul Thissen, DFL-Minneapolis.

Dayton would use about half of the $1.2 billion projected budget surplus to lower taxes. But he also intends to use some money to bolster budget reserves against future downturns, give raises to state-paid health care workers and ensure that no student in Minnesota is denied a hot school lunch.

Dayton is urging legislators to pass the tax package by the end of next week, giving the state time to implement the changes before tax returns must be filed. Some of the proposed tax breaks would be retroactive to 2013, such as the adoption credit and an income tax break for people who lost their home to foreclosure or a short sale.

“Minnesotans should know if the Legislature doesn’t act, it will cost them some of the tax savings I am proposing,” Dayton said.

GOP, Senate see differently

Republicans are generally supportive of the tax relief proposal but blasted DFLers for imposing more than $2 billion in new taxes last year and now wanting credit for returning a portion of the extra revenue.

“Less than half of the surplus is being given back to taxpayers,” said Deputy House Minority Leader Jenifer Loon, R-Eden Prairie. “We can do better.”

The DFL-led Senate doesn’t share the same urgency to pass the tax bill in the next week, and Senate leaders have not shown the same enthusiasm for cutting taxes as deeply.

“I think it’s getting late to make the argument that we need to pass this urgently, that people are filing their returns,” said Senate Majority Leader Tom Bakk, DFL-Cook. “It may take us a while to wade through all the provisions.”

Bakk has also expressed reluctance to repeal business-to-business sales taxes that he pushed for last year.

The governor is proposing eliminating the so-called marriage penalty, which means 650,000 married couples would no longer pay higher income taxes than single people making the same amount of money.

He also wants to expand the Earned Income Tax Credit, making an additional 14,000 families eligible and giving an average savings of $334 a year to those who qualify.

The governor would also expand tax credits for child care, saving those taxpayers who qualify an average of $430 per a year. College graduates with student debt would save an average of $140 a year under the plan.

The governor is also proposing to streamline business taxes to make them square with federal laws, vastly simplifying record-keeping for small businesses.

In a reversal from a year ago, Dayton wants to do away with a much-criticized new sales tax on the repair and maintenance of farm equipment. He is also seeking greater tax breaks for start-up businesses and entrepreneurs.

About half of Dayton’s tax relief would undo increases DFLers imposed last year to eliminate a projected deficit of more than $600 million, repay debt to public schools and increase money for education.

Dayton said those choices were prudent given the circumstances, but the state’s strong economic growth now offers a chance to make the tax system fairer.

“For those people who say we are not using wisdom in our midcourse correction based on changing circumstances, they are not in touch with reality,” Dayton said.

Factoring in an election year

The windfall is adding a dose of election-year drama to the legislative session — Dayton and all the House members face voters in November.

By eliminating the business sales taxes, Dayton and DFLers would diminish what has been a central argument by Republicans, who are trying to leverage anger over those taxes on the campaign trail.

The strength of the state’s recovery has allowed it to refill depleted budget reserves and pay back nearly $3 billion owed to public schools. For the first time in more than a decade, legislators have their first true surplus to manage. The extra money brings advantages but comes with potential headaches as legislative leaders feel pressure from cash-strapped organizations that rely on state funding.

“There are a lot of needs out there that I am not addressing and there are people who are going to be unhappy with that, and I regret that,” Dayton said.

The governor’s proposal seeks to modify the estate tax and eliminate the gift tax, which has been widely criticized. He would double the exemption on the estate tax, up to $2 million. Minnesota would no longer be one of the few states to impose a gift tax.

The governor is seeking some new spending, about $162 million. Much of that money would go to raises for state-paid health care workers and extra money for low-income heating assistance.

Reacting to reports that Minnesota schoolchildren were being denied hot lunches because they had no money to pay for them, Dayton has said he wants to set aside $3.5 million to ensure that no longer happens.

He would use the remaining $455 million to boost budget reserves to $1 billion, as recommended by many economists.

Minnesota Management and Budget Commissioner Jim Schowalter has said that level of reserves would give the state a better cushion in the next downturn.


Staff writers Abby Simons and Rachel E. Stassen-Berger contributed to this report.