Tax-cut fever has taken over the Minnesota Capitol.
Minnesota Senate DFL leaders raced to finish the most significant tax-relief package in years Wednesday as Republicans tried to grab a share of the spotlight with their proposal to reduce sales taxes.
The Senate Taxes Committee finalized $430 million in tax cuts for businesses and consumers, including setting aside another $150 million to build up the state’s budget reserves. Lawmakers are scrambling to pass the proposal so the maximum number of Minnesotans can take advantage of millions in retroactive tax relief for 2013.
“This is a really positive step for low- and modest-income Minnesotans,” said Sen. Ann Rest, a New Hope DFLer who is vice chairman of the tax committee.
Legislators are rushing to finish the tax-relief proposal before the April 15 income tax filing deadline. They are also hustling to repeal new sales taxes on telecommunications equipment and repair, and another on warehousing services, which takes effect in less than two weeks. The Senate is expected to pass its tax-relief package Thursday, and then it goes back to the House for further consideration.
The flash of urgency came a day after DFL Gov. Mark Dayton scolded fellow party members in the Senate, saying they were intentionally slowing passage of the tax proposal to use it as a bargaining chip for a new Senate office building.
Dayton had wanted the proposal on his desk by Wednesday, but legislators will miss that deadline by a day. Dayton praised the breakthrough in the Senate and vowed to get the relief to taxpayers as quickly as possible. “I’m around all weekend,” he said Wednesday.
Roughly 400,000 Minnesotans stand to benefit from retroactive tax relief once the measure becomes law, according to the state revenue department.
Tapping into surplus
DFLers, who control both chambers of the Legislature, are trying to make the most out of a $1.2 billion projected budget surplus during an election year for Dayton and the House. The politics and bickering surrounding the surplus have upended what was billed as a relatively quiet session devoted to financing state-backed construction projects, debating a minimum-wage increase and sorting through a wide range of government streamlining initiatives.
Minutes after the Senate tax committee finished its work, Republicans marched into the committee room and said they not only largely agree with the DFL plan, they want to up the relief by another $360 million in permanent sales tax reductions.
“Sales taxes affect everybody,” said Senate Minority Leader David Hann, R-Eden Prairie. Sales tax relief “is abundantly fair.”
To do this, Senate Republicans want to lower the state sales tax rate to 6.375 percent, from 6.875 percent.
“Every time a family shops at Target, they will benefit from this sales tax reduction,” Hann said.
Republicans have argued that DFLers raised too many taxes last year, to the tune of $2.1 billion extra. But state budget officials warn that cutting taxes too much now could wipe out projected surpluses in the future and send the state back into deficit.
Senate DFLers support using some of the surplus to bolster the state’s reserves, bringing the state’s rainy-day fund to around $800 million. Several DFL leaders would like to see the reserves closer to $1.9 billion to better insulate the state budget from economic downturns, and their proposal includes a provision that would earmark one-third of all future surpluses to continue bulking up the budget reserves.
Senate Taxes Committee Chairman Rod Skoe said he does not want a repeat of the last decade, where the state sank into a cycle of deficits, borrowing and emergency budget-cutting that damaged the state’s credit rating.
“A little bit of caution is in order,” said Skoe, DFL-Clearbrook.
Republicans oppose building up cash reserves, saying the tax money should be in the economy, not sitting in the state’s bank account.
“We are better off letting people keep their money in their pockets,” Hann said.
Senate, House plans differ
Along with beefing up the state’s rainy-day fund, the Senate tax proposal differs with the House in a few keys ways.
The Senate proposal does not rebate money to consumers who paid the new business sales taxes that would soon go away.
House DFLers had wanted to refund millions of dollars to those taxpayers, but Minnesota Department of Revenue Commissioner Myron Frans said it would be too cumbersome and expensive to return the money.
House Speaker Paul Thissen, DFL-Minneapolis, said he hasn’t seen the changes proposed by the Senate, but called it “a very good and important and positive step.”
Thissen said he does not outright reject the notion of increasing the budget reserves, “but I’d need to look at the proposal.”
Staff writer Rachel E. Stassen-Berger contributed to this report.