Supersized tax cut plan clears House, but much in its way

Published 10:01 am Thursday, April 30, 2015

ST. PAUL  — In a debate that took them from a lake town pie shop to the moon, Minnesota House lawmakers dueled Wednesday over who would gain most from a Republican-written tax plan that aims for more than $2 billion in breaks soon and double that down the road.

The bill, which passed 74-58, contains an array of income tax credits and exemptions. It also would add more protections against the estate tax and gradually draw down a state property tax assessed on businesses.

Peggy Bennett

Peggy Bennett

“Minnesota’s economy does better when Minnesotans have more money back in their pockets,” said District 27A Rep. Peggy Bennett said. “Our bill prioritizes tax relief for middle-class families, and will benefit farmers, seniors, veterans, college students, and many other families here in our community. I’m proud to support middle-class tax relief that will truly help Minnesota families.”

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In addition to tax breaks, three big cities — Duluth, Minneapolis and St. Paul — would see their state aid allowances reduced, which lawmakers from those areas called mean-spirited.

Coalition of Greater Minnesota Cities Vice President Bob Broeder said he was disappointed in the cuts to LGA included in the bill and said they threaten the future of the program.

“Despite a large state surplus and bipartisan support for legislation that would have provided a modest increase in LGA, the House ultimately chose to move the LGA program backward,” Broeder said.

“In the remaining two weeks of the session, mayors and city leaders across Greater Minnesota will work tirelessly to see that the House changes direction and recommits to meeting the needs of adopting the Senate’s proposal to increase funding for LGA.”

How many of those measures survive negotiations with Democratic Gov. Mark Dayton and the Democratic-led Senate is a major question. The governor and Senate leaders argue the bill cuts taxes too steeply and leaves Minnesota at risk of another round of deficits.

Republican Rep. Greg Davids, the bill’s main architect, highlighted the new or expanded credits for Social Security income, education expenses, college loans, long-term care costs and fitness club memberships. A key feature is a new $1,000 personal and dependent exemption on state tax forms, which would be in place for two years and then expire.

“In our bill we provide tax relief for real people,” said Rep. Anna Wills, R-Apple Valley. “We’re supporting middle-class Minnesota families.”

But Democrats keyed in on carve-outs for businesses. They questioned whether the state could afford a phase-out of the business property tax that has been in place for a dozen years. At first, businesses would get an exemption on the first $500,000 in value and the tax would go away entirely in six years, a cut worth about $1.5 billion in the first four years.

“We don’t need to break the state budget in tax cuts in order to build a stronger Minnesota,” said Rep. Ben Lien, a Moorhead Democrat.

Democrats charged that big corporations would benefit most, criticizing the move to give out-of-state operators of downtown Minneapolis skyscrapers and the Mall of America, among others, millions of dollars per year in property tax savings.

Republicans countered that it would mean more to main street businesses operating on slim margins. Rep. Steve Drazkowski, R-Mazeppa, shared the plight of the Sunrise Cafe in tiny Malmo that owes $4,200 now in state property taxes that increase every year — equivalent to the money it makes selling 800 scratch-made pies.

“Members, the pies have not even been baked yet and state government is already eyeing up the money,” Drazkowski said. “Let’s leave them alone.”

Democrats failed in repeated attempts to reroute the business tax cuts to middle-income taxpayers. They also tried unsuccessfully to undo a change to the estate tax that would shield a greater value of inheritances from tax collectors, affecting some 800 estates per year.

Republicans argued it would protect small-business owners and farmers who pass on their property to the next generation.

“I thought the role of government was to protect the minority. This minority you don’t care about,” said Rep. Jerry Hertaus, R-Greenfield.

Democratic Rep. Carly Melin of Hibbing said the arguments don’t hold up. She said current law already excludes $5 million in farm and business property from estate taxes as long as the heirs operate the holding for three years before selling it off.

In 2013, Melin said, “nationwide, more Americans have been to the moon than farmers who paid the estate tax.”

The Senate plans to vote on its far-different tax proposal as soon as Friday. It offers about one-tenth of the relief. From there, negotiations involving Dayton’s administration will commence.

Dayton said he won’t support $2 billion in tax cuts, saying it would be a repeat of the late-1990s givebacks that preceded nearly a decade of running budget deficits.

“We’ve been cleaning that up since I arrived,” the governor said. “Why they want us to walk that plank again is just beyond me.”