Minnesotans shouldn’t start daydreaming yet about spending the tax cuts that are offered in a pair of hefty bills headed toward conference committee at the Legislature. Those GOP-backed tax cuts are also headed for a showdown with DFL Gov. Mark Dayton, who has been saying all year he won’t sign measures that put future financial stability at risk.
That’s what these bills would do. Both the House’s $1.16 billon version for 2018-19 and the Senate’s smaller $900 million package contain measures that would divert ever-larger sums from the state’s revenue stream in the coming decade. Coming at the start of what’s forecast to be 10 years of slow or no growth in the state’s labor force, those tax cuts could sorely pinch the state services that will be needed more than ever in future years — education, infrastructure renewal, and care for the disabled and frail elderly. Stop investing in those things, and Minnesota will be the worse for it.
Yet with a $1.65 billion surplus forecast for 2018-19, some state tax relief is affordable. In coming days, the Star Tribune Editorial Board will recommend a budget plan that includes a tax cut that would be responsible and sustainable. For now, we urge the Legislature’s tax conferees to demonstrate the sincerity of their claim that they want a tax bill signed into law this year — something they failed to achieve in both 2015 and 2016. These two bills should be scaled down and reconfigured with these principles in mind:
• Avoid explosions. While most tax cuts take a slightly bigger bite from state revenue in succeeding years, three provisions in this session’s two tax bills possess what legislators sometimes call “exploding tails.” That means their impact on state revenue in 2020-21 and beyond is considerably larger than in 2018-19, and would just keep growing.
The offenders: Allowing a large share of Minnesota seniors to subtract Social Security benefits as they compute Minnesota taxable income, just when share of the population receiving those benefits spikes. Aligning Minnesota’s estate tax with the federal tax code, cutting taxes for the heirs of wealthy people as the size of estates is projected to grow. And modifying the business property tax in ways that ease its burden dramatically — in the House version producing a $205 million tax cut in 2018-19 that grows to $332 million in 2020-21. Those provisions should be either redesigned to rein in their future cost to the state treasury, or dropped.
• Aim low on the income scale. We detect more politics than economics in the argument that all Minnesotans are overtaxed and deserve a cut. That claim is part of the justification for the Senate’s bid for a $200 million per year income tax cut that would reach filers well past the state’s median income and bring an average break per filer of $50 in the current tax year, $88 the next year.
Rather than providing a small break for many, legislators should direct meaningful relief to Minnesotans at the harsh end of the economic spectrum — a cohort that has grown in an economy whose rewards have tended to trickle up, not down, in the past decade. Target tax relief at low-income families with young children and young workers overburdened with student debt, and state lawmakers will be benefiting more than those individuals. They’ll be shoring up Minnesota’s future.
There’s ample opportunity for bipartisanship in targeting tax relief at lower-income Minnesotans. In 2016, both parties said yes to an increase in the working family credit, an increased child care tax credit, and a student loan repayment credit that together totaled $200 million in 2018-19. Those “aim low” ideas should reappear this year.
• Be a reliable partner. Minnesotans saw a decade ago that “no new taxes” in state government translates into higher city, county and school property taxes and increases in public college tuition. This year’s GOP budgets seem intent on showing that tax cuts can do the same. The House and Senate accommodate their big tax bills by being stingy with education funding and aid to cities and counties.
For example: Local government aid, the workhorse funder of municipal services, gets no increase in the House bill; the Senate bill provides a $12 million increase, but, under terms of an amendment adopted Monday, strips Minneapolis of $29 million next year alone. That’s so even though the aid program is still sending city governments $45 million per year less than it did in 2002, before a string of cuts. That 15-year squeeze has shifted the burden of government costs to the property tax, which falls disproportionately on people with limited means.
Aid to cities and counties may not bring politicians the bragging rights that a tax cut delivers. But responsible governance must include respect for the long-standing partnership among state and local governments.