A $2 billion tax cut proposed by House Republicans Monday would give all income tax filers a small, temporary break while also extending savings to businesses, Social Security recipients, military retirees, farmers and students with college loans.
The temporary tax break would amount to $70 per single filer making $50,000 a year, more for those with dependents. The exemption would phase out after two years, but would cost $539 million in that time.
The next biggest tax break would go to a permanent phaseout of the statewide business property tax. With initial costs pegged at $453 million over two years, eliminating the levy would cost $1 billion by 2018-19 and nearly $1 billion per year when fully phased in.
Similarly, a tax exemption for Social Security income would cost the state treasury $237 million in the coming budget period, but would rise by 2018-19, to $641 million.
Rep. Greg Davids, R-Preston, chairman of the House Taxes Committee and chief author of the bill, said "the basic philosophy of this bill is Minnesotans know what to do with their money better than state government does."
If enacted, the Republican plan would result in widespread policy implications for years because it would lock in significant tax savings for businesses that own property. By reducing state revenue over the long term, it would force future Legislatures to cut government or find new revenue, especially if and when a recession hits and tax receipts slip.
On the spending side, Gov. Mark Dayton's $343 million universal prekindergarten plan would grow to $914 million in 2018-19, compelling future Legislatures to make potentially difficult fiscal choices.
The two approaches illustrate the parties' philosophical divide about how to continue Minnesota's economic prosperity: Republicans would put more money in the hands of the private sector, while Democrats would invest in early childhood learning to develop an educated workforce.
Dayton's office said he is waiting on analysis from the Revenue Department and would likely hold a Tuesday news conference to air his views on the Republican tax plan.
Senate Majority Leader Tom Bakk, DFL-Cook, was dismissive Monday of plans to phase out taxes like the state commercial and industrial property levy: "We do not intend to negotiate a budget with the House that is going to plunge us … back into a deficit," he said during a Senate recess.
The Senate DFL tax plan would cost $460 million over two years, with the remainder of the state's projected $1.9 billion surplus going to new spending and money for the state's reserves. The House tax bill also includes a provision for pumping $100 million into rainy day funds.
Before beginning what will no doubt be difficult negotiations given how far apart the two sides remain, House Republicans Monday basked in their majority status and the activity that for them is as cherished as hockey and church: Cutting taxes.
"Our priority in this tax relief package is clear: middle-class Minnesota families," said House Majority Leader Joyce Peppin, R-Rogers.
They pointed to the personal and dependent exemption as their premier item, which they said could save some middle-class families of four up to $500 over the two-year life of the exemption.
The bill has a long list of tax cuts, exemptions and credits, including a repeal of the excise tax indexing on cigarettes that would cost $9.7 million during the first two years and $33.3 million in the two years after that.
Other winners in the Republican plan include military pensioners; students with college debt; doctors and dentists who perform charity care; people saving for long-term care or college; teachers paying for a master's degree; sole proprietors investing in research and development; angel investors; gold coin investors; health club customers; and, heirs inheriting estates of at least $1.4 million.
Davids, the Taxes Committee chairman, said he chose not to eliminate the new highest income tax tier because he said Dayton would never sign the repeal of his signature policy that he ran and won on twice. Many of the provisions in the bill have DFL cosponsors, and Davids, who likes referencing the Journey lyric, "Don't stop believing," said he looks forward to working on a bill that will win DFL votes and that Dayton will sign. Many of the provisions are "scalable," meaning the Legislature could enact them but at much lower cost if it chooses to do so.
The House DFL minority was sharply critical of the plan, calling the middle class tax cuts a mirage meant to hide the larger, long term reductions for corporations that pay the statewide general property levy. With average Minnesotans at his side, Minority Leader Paul Thissen, DFL-Minneapolis, charged that to enact their tax cut plan, Republicans would be shortchanging schools and universities and working class residents who get their health insurance through MinnesotaCare.
Also tucked into the bill are some major policy provisions that will draw significant debate, including elimination of the campaign donation refund; a cut in local government aid to Minneapolis, St. Paul and Duluth only; and the House transportation plan to divert general fund revenue from rental car taxes and auto parts sales taxes to road and bridge construction.
Patrick Coolican • 651-925-5042
