A tax plan released by the Senate DFL Monday would give modest property tax relief, provide a tax credit to businesses that hire veterans and give aid to local government.
The proposal, which would cost the state treasury about $460 million over two years, sets up a conflict with the Republican-controlled House, which has proposed $2 billion in tax cuts.
The state's projected $1.9 billion budget surplus has amplified the parties' philosophical clash as each side would use the pile of extra money to push their favored agenda, with Republicans seeking tax cuts while Democrats propose putting more money into education and other priorities.
"We think this is fiscally responsible," said Senate Taxes Committee Chairman Rod Skoe, DFL-Clearbrook.
Nearly half the bill's total cost — $225 million — comes from repaying accounting shifts made during difficult budget years; for instance, payments for local government aid will go out four times per year instead of twice.
Senate Majority Leader Tom Bakk, DFL-Cook, and Skoe have said that paying back the money is the right thing to do and preserves the shift option for future Legislatures, should lean budget times return.
Skoe said the best solution to the problem of veteran homelessness and mental health is more jobs, so his tax plan includes a credit of up to $2,500 for businesses that hire veterans. Skoe said he hoped it would lead to jobs for 10,000 veterans.
The plan also would modestly decreases property taxes while increasing county program aid and local government aid, which Skoe said would help municipalities keep property taxes down.
Sen. Julianne Ortman, R-Chanhassen, said aid to local government has never worked as a way keep property taxes down, leading instead to high local government spending. Ortman also said the Senate DFL tax bill should be considered with the DFL transportation plan, which would impose a new wholesale gas tax to fund $11 billion in transportation projects during the next decade.
"It's an enormous burden on Minnesota families," she said.
The House tax plan would offer every Minnesota income tax filer a temporary $1,000 exemption for the next two years. It would phase in tax cuts for Social Security recipients and statewide business property taxpayers that would balloon in cost in future years. The House plan also would shift some tax money from the general fund and dedicate it to road and bridge construction.
Bakk has said he refuses to repeat mistakes of the past, when the Legislature cut taxes during good economic times only to face years of fiscal crisis once a recession arrived.
Rep. Greg Davids, R-Preston, the chairman of the House Taxes Committee, acknowledged the differences between the House and Senate approach: "I think the House is from Venus and the Senate is from Mars," he said.
Missing from the Senate DFL tax plan: A child care tax credit favored by Gov. Mark Dayton.
The Senate Taxes Committee is expected to take up the bill Tuesday; the House tax plan is scheduled to be debated on the House floor Wednesday.