The GOP-led Minnesota Senate is poised to clear an economic relief package Thursday amid partisan differences over tax breaks for individuals and businesses struggling during the coronavirus pandemic.
The Republican plan would delay some state tax payments due in the months ahead and waive penalties, deferring about $1 billion in revenue. It would also expand tax credits for families with school-age children, charitable contribution and investors in small businesses.
But a centerpiece of the original GOP tax proposal, a full rollback of state taxes on Social Security income, was removed because of state budget constraints brought on by the crisis.
Nevertheless, the plan faces opposition from Democrats who control the state House and question the cost given the hit the pandemic is expected to take on the state budget in the coming months. DFL lawmakers are working on their own economic relief package, which includes additional funding for housing assistance, rural broadband and low-income families, as well as guaranteed pay for hourly school workers.
The differences are expected to play out in the final three weeks of the session as new state revenue projections come into focus.
Sen. Roger Chamberlain, chair of the Senate Taxes Committee, called the GOP proposal a "direct shot in the arm" that would help keep businesses afloat and protect state tax revenue in the months ahead.
"The economy needs a jump start," the Lino Lakes Republican said. "Keeping [businesses] solvent, getting employers back up and running, getting people back to work as quickly as possible means that damage on the back side and pain on the back side will be as limited as possible."
House Speaker Melissa Hortman, DFL-Brooklyn Park, said Wednesday that the Department of Revenue has already delayed some tax deadlines and "on a case-by-case basis is willing to work with businesses that need more time." State and federal deadlines for individual income taxes have already been moved from April to July 15.
Hortman said the House Democrats are aligned with DFL Gov. Tim Walz.
"Because the COVID crisis has hit Minnesota businesses so unevenly, to have tax measures that provide benefit across the board without looking at the specific areas of need is not the approach that the administration favors or that we in the House would favor," she said."
Sen. Kari Dziedzic, DFL-Minneapolis, called the GOP tax bill "premature." She advocated waiting for an updated revenue forecast in early May to make "strategic and targeted" changes.
"I think we will know more about our economic situation next week after we get more information from the budget [officials]," she said. "I think that's the time to have the discussion about who this is actually impacting."
Chamberlain dismissed those concerns, saying businesses need answers before the next wave of deadlines hits in mid-May. He said incoming federal pandemic aid will help offset the roughly $300 million net impact the changes are projected to have on the state's budget reserve.
"Time is critical," he said. "A lot of these businesses need to know what's going on so they can plan."
The tax legislation includes some, but not all, of the provisions included in a sweeping tax package unveiled by Senate Republicans at the start of the session. State law, for example, would align with new federal limits on equipment purchase deductions for businesses under the plan.
The earlier proposal was based on projections showing a $1.3 billion budget surplus. But those reserves are no longer expected to materialize, with some officials warning of a pandemic-induced budget deficit. The new budget constraints also led Republicans to table their original proposal of a rollback of state taxes on Social Security income, a plan they had hoped to campaign on in the fall.
Senate Majority Leader Paul Gazelka, R-East Gull Lake, said last week that the Social Security proposal will remain a priority. But he said the caucus is focusing on changes that are most necessary and "will spur economy growth" given the current limitations.
The Senate tax bill would reduce state revenue by more than $1 billion this fiscal year, largely because of the payment delays. The state would expect to recoup much of that money in the 2021 fiscal year, which begins in July. Longer-term, the tax credit and deduction changes would lower annual revenue by closer to $80 million a year.
As House DFL leaders advance their own economic relief package, they called on Senate Republicans Wednesday to take up their proposals. The House is expected to take up its coronavirus response legislation in floor votes as soon as next week.