Dayton's plan aimed at tax relief for families gains traction

Minnesota taxpayers, particularly families, senior citizens and those who work from home, could see $24 million in overall tax relief under Gov. Mark Dayton's recent budget proposal, a more precisely crafted plan compared with past budget blueprints.

Because the proposals are tilted more heavily toward tax relief, they already have found some favor among the Republicans who control the House — a stark contrast from the heated battles sparked by the DFL governor's earlier proposals for tax hikes for the rich and business interests.

The costliest item, a $100 million expansion of the child care tax credit, has received some bipartisan support, though Republicans may move to reduce eligibility. Other pieces constitute a series of tweaks aimed at closing loopholes and leveling the playing field for Minnesota taxpayers.

"In going through the governor's bill, it was more modest than it has been in the past," said Rep. Greg Davids, R-Preston, and chairman of the House Taxes Committee. "There are some things we're going to agree on."

One proposed change would allow more senior citizens to defer their property taxes. Another would close a handful of corporate tax loopholes to nip growing tax-evasion techniques. Dayton would put an end to double-dipping Wisconsinites who work in Minnesota but claim a working family tax credit in both states — a change that officials estimate would save the state about $10 million over the next two years.

"Many of the provisions are really aimed at fairness, using the most up-to-date methodology for assessing values or closing loopholes or treating people the same across Minnesota," Revenue Commissioner Cynthia Bauerly said.

For some Minnesota companies, the changes would close loopholes that have allowed them to skimp on taxes. It would expand the definition of financial institutions to include partnerships and limited liability corporations. Some insurance companies that shelter income from Minnesota taxes are also being targeted. Closing the loopholes would raise $17.4 million over the next two years.

Minnesotans who run a business from home would benefit from a simplified home-office deduction to determine property-tax refunds. If adopted, that change would cost the state $420,000 over the next two years.

Dayton's main priority in his tax package — the expansion of child care tax credits — is unlikely to face much opposition from Senate Republicans. Shortly after the governor presented that proposal, Senate Minority Leader David Hann, R-Eden Prairie, said his caucus would be open to bills offering Minnesotans tax relief.

Davids, the House tax committee chair, said Republicans may suggest lowering the upper-income threshold in the Dayton child care credit, which would nearly triple income eligibility, from the current limit of $39,000 to $124,000 for families with two or more children.

The Legislature is off to a quick, bipartisan start on taxes, coming together easily on a vote to align the state tax code with its federal counterpart. Dayton signed that bill into law last week, and it's expected to provide state tax breaks for teachers spending out-of-pocket on classroom supplies, and homeowners paying private mortgage insurance.

Dayton's budget proposal comes as Minnesota's economy has recovered, bringing with it an improved fiscal picture for the state. Minnesota has a projected $1 billion surplus, much of which the governor has said he wants to be spent on schools and families.

"In a year where there are surplus moneys and the economy has come back, [Dayton's tax plan] makes perfect sense," said Sen. Richard Cohen, DFL-St. Paul, and chairman of the Senate Finance Committee. "Generally it's a good proposal. It aims at some areas that we haven't provided support and we've fallen behind."

Separately, Dayton last week presented an ambitious $11 billion transportation proposal with a series of tax increases — including a new tax on wholesale gasoline sales — that Republicans oppose.

"I don't see any gridlock coming up in the tax bill," said Sen. Ann Rest, DFL-New Hope, and vice chair of the Senate Taxes Committee. "The transportation bill, and the revenue streams proposed there, that's a different story. That will be very controversial."