As session opens, race is on to offer tax relief

Even before Tuesday's opening of the 2014 legislative session, the fight over tax breaks was already on center stage at the Minnesota Capitol.

House Republicans tried to make the first move Monday, calling a Capitol news conference to press for more than $270 million in tax breaks for parents of adopted children, married couples and those who lost their homes to foreclosure. DFLers plan to introduce their own measures on similar tax breaks.

"It's trying to get back to Minnesota Nice, rather than Minnesota Nasty," said state Rep. Greg Davids, a Preston Republican who is the ranking GOP member on the House Taxes Committee.

As the session unfolds Tuesday, the fight over tax relief is expected to be a defining battle, particularly with the state sitting on a projected budget surplus of close to $1 billion. The session already is tinged with election-year politics as the DFL is hoping to hold control of the House and Republicans are trying to wrestle it away.

Legislators in favor of providing tax relief face an excruciatingly tight deadline as Tax Day is a little more than a month away and both parties hope to make some of the tax breaks retroactive, which could save Minnesotans millions.

House Democrats are planning to use a giant chunk of the first day of the session to begin plowing through more than a dozen tax-relief proposals, including several sponsored by Republicans.

"This really is a top priority for us," said House Taxes Committee Chairwoman Ann Lenczewski, DFL-Bloomington.

DFL and Republican tax-reduction proposals are quite similar, with both sides also supporting an end to the so-called marriage penalty, in which married couples pay more income tax than if they were single.

There is also wide agreement that the state should mirror federal tax law on home foreclosures.

Under current state tax law, homeowners who lose their homes to foreclosure or a short sale must count the amount the bank loses in the deal as income. Former homeowners already in the midst of crushing financial hardship can suddenly face a state tax bill of several thousands of dollars.

Davids and other Republicans would likely support a tax-relief package that includes many of these provisions that would conform to federal tax law.

"If it is still meaningful tax relief, I would lean heavily to support it," Davids said. "If I don't get every item on my list, I am not going to take my toys and go home."

"Last year we did not have bipartisan support on our federal tax conformity proposal, but I hope this year we can work together to pass middle-class tax cuts," she said.

DFLers also noted that Davids did not press for these same tax breaks three years ago, when Republicans controlled the House and Davids chaired the tax committee.

Davids said the proposed tax cuts were not possible then, as the state faced a multibillion-dollar deficit. Because tax cuts take money out of the state treasury, they are counted as spending.

Gov. Mark Dayton is pushing for a similar range of tax breaks, which will be revealed in coming weeks.

The DFL governor successfully pressed to raise income taxes for high earners last year, arguing that Minnesota's wealthiest residents were not paying their fair share.

"I think this is really a smart package because it plays off what we did last year," Minnesota Department of Revenue Commissioner Myron Frans said in an earlier interview on the tax cuts Dayton was proposing.

Frans said the tax increase passed last year "was an amazing and incredibly progressive change, and this fine-tunes that. It makes it more simple and gets relief to the people who need it."