Minnesota House Republican Taxes Committee chair Greg Davids last week offered a charitable assessment of the tax proposal Gov. Mark Dayton sent to the 2017 Legislature during the new session’s first days.
“It’s the best tax bill he has put forward,” Davids said of the two-term governor’s proposal. “But my first thought was, why didn’t he just sign the 2016 tax bill?”
Davids is justified in reacting to Dayton’s 2017 plan with some pride of authorship. The governor borrows substantially from the tax bill Davids and then-Senate tax chair Rod Skoe, DFL-Clearbook, assembled last May. That well-balanced bill was felled by a gubernatorial veto after the Dayton administration detected a potentially costly drafting error — one Davids insists need not have scuttled the bill.
Yet Dayton’s 2017 proposal differs from the 2016 bill in several notable respects. A key one: At $300 million over two years, Dayton’s proposed tax cuts are more than a third smaller than the ones the Legislature sent him last year. They reflect the governor’s avowed determination to keep the state budget in the black not only in the coming 2018-19 biennium, but in the out years as well.
We hope Dayton sticks to that vow. The latest state budget forecast, released in December, projects “slower revenue growth” and a $467 million decline in 2018-19 revenue compared with the February 2016 forecast. Chances are good that the next U.S. recession is nearer in time than the last one. State lawmakers erred in 1999-2001 when they enacted large tax cuts on the cusp of a recession, leading to a dozen years of recurring state deficits. They ought not make that mistake again.
That said, the Republicans who now control both the House and the Senate are sure to push for bigger cuts than Dayton seeks. As they do, they should look first to two handsome features of the 2016 tax bill that Dayton’s latest proposal omitted:
• A business property tax cut tilted toward small businesses. The 2016 bill excluded the first $100,000 of commercial/industrial property’s market value from the statewide business property tax. That change would benefit all businesses, but would be particularly advantageous — and could serve as a redevelopment incentive — on Greater Minnesota’s Main Streets.
• A tax credit of up to $1,000 per year for borrowers repaying student loans. This would have been a first-in-the-nation approach to assisting debt-burdened college graduates. It would be a smart and timely move for a state that’s confronting a workforce shortage and needs a welcome mat for young talent.
Legislators would also do well to stick with the emphasis that Dayton puts on tax relief for lower-income working families. His increases in a refundable tax credit for low-income families and a tax credit for child care expenses would put a firmer financial foundation under the households raising a sizable share of Minnesota’s next generation. Those measures would benefit the entire state in the long run. Both were included in the 2016 bill.
The early Capitol talk about tax relief is welcome, not least as a signal of confidence that the state economy remains on a positive trajectory. And the quick action this week on a federal tax conformity bill is a sign that the new Legislature aims to be pragmatic about tax policy.
Now lawmakers must resist the temptation to get into a partisan bidding war that runs up relief into unsustainable territory, or that promises ever-larger cuts in coming years. Legislators share a duty with Dayton to craft a tax bill for 2018-19 that does not put future state solvency at risk.