Dayton proposes child-care tax credit expansion

DFL Gov. Mark Dayton and Senate Republicans on Tuesday offered divergent proposals that would provide tax breaks for vastly different constituencies — families with young children and Minnesota retirees.

Dayton outlined details of a $100 million expansion of the state's child-care tax credit in a news conference just before Senate Republicans called for eliminating the state's income tax on Social Security benefits.

Households earning up to $124,000 would be eligible for the credit, which would give direct tax relief averaging $481 per family to about 130,000 families statewide. The credit also would apply to dependent care for the disabled and elderly.

"This is really about making families more affordable for parents and enabling them to make decisions based on work opportunities and on careers as well as their families, and not have to pick one or the other," Dayton said. He noted that the credits are especially needed in a state where the cost of child care compared to median income makes Minnesota the third-least-affordable state in the country. Dayton said his plan would put more money in the pockets of working families and further boost the economy.

The proposal comes on the heels of a plan by President Obama to raise the amount of a federal child-care tax credit. Obama was expected to highlight a broader tax relief plan for the middle class during his State of the Union Address on Tuesday evening.

The state plan would be capped at $2,100 per family. Income eligibility would nearly triple from the current limit of $39,000 in household income to $112,000 for one-child families and $124,000 for those with two or more children.

Child care costs most acutely affect single-parent households, according to a 2013 report by Child Care Aware, an industry group that compiles state-by-state data. The average cost for child care annually was $13,876 for a single-parent household, eating up more than half of the parent's annual median income, according to survey and census data. For married, two-parent households, the cost of child care annually ate up just more than 15 percent of their median income.

"Republicans are not going to argue too much with the idea of allowing people to keep more of the money that they've earned, so we don't think it's a bad idea," Hann said. "It's in the context of a big budget, we understand that, and we don't know what else is in that budget … but that particular feature of his budget, we're not going to object to that."

Dayton said he's hopeful both his and Republicans' proposals would get equal attention by the Legislature.

"They're both deserving of additional income for necessities and the like," Dayton said. "I hate to see the elderly pitted against children. I hope that's something we can avoid in this session and find the route to accommodate both deserving groups."

Republicans, who have made caring for the state's aging population a legislative priority, introduced a plan to reduce and eventually eliminate the state's income tax on Social Security benefits.

The "Retire in Minnesota Act," as the legislation is titled, would cut seniors' contributions to state coffers by $127 million over the next two years. Republicans say the bill is critical to keep retirees from leaving the state for warmer climates such as Florida, or elsewhere, such as nearby Wisconsin or Iowa.

Like Dayton, Senate Republicans framed their proposal as a way to boost the economy by putting more money in Minnesota pocketbooks.

When retirees stay in Minnesota, "they spend money on movies, restaurants, theaters, they take the grandchildren with them, they give to local charities and pay property taxes," said the bill's cosponsor, Sen. Mary Kiffmeyer, R-Big Lake. "There's a lot of revenue, that if you don't do this, you're going to hear the great big giant sucking sound of the southern states pulling our boomer retirees."

Although they had no immediate estimates on state revenue lost by seniors who leave the state, the bill's chief author, Sen. Dave Senjem, R-Rochester, said they were confident that the money spent by those who stayed would offset the cost of the tax break — and it's hefty. Without a phase-in, by 2018 the lost tax revenue would cost the state $437 million, rising to $477 million in 2019.

Lawmakers and the governor weren't the only ones asking for state money for their goals.

The Coalition of Greater Minnesota Cities on Tuesday said its legislative agenda would require about $500 million — half the state's total projected surplus for the upcoming budget period. That would include funding for local government aid, broadband access, job training, workforce housing and transportation. The bulk of that money, about $400 million, would be for outstate transportation, split among local roads and busier arteries that have been dubbed "corridors of commerce," such as Hwy. 23.

Abby Simons • 651-925-5043