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3 Minnesota tax plans have $1 billion differential

Democrat Sen. David Tomassoni of Chisholm, left, talks with Republican Senate Leader Paul Gazelka of Nisswa, during a Senate floor debate on taxes Monday, April 3, 2017. Maureen McMullen / Forum News Service

ST. PAUL—Minnesotans have time to lobby state leaders about wildly varying tax cuts proposals.

State senators on Monday, April 3, approved 40-27 cutting taxes $900 million, following last week's House 80-52 vote in favor of a $1.35 billion cut. Democratic Gov. Mark Dayton's $300 million plan comes in below the tax cuts promoted by the Republican-controlled Legislature.

The $1 billion difference could be in negotiations until near the constitutional May 22 legislative adjournment date.

"With a $1.65 billion budget surplus, it is clear state government has overcharged Minnesotans," House Tax Chairman Greg Davids, R-Preston, said, echoing Republicans' desire to "give back" money to taxpayers.

Dayton modeled his tax proposal on one that he vetoed last year after a $100 million wording error was discovered. He says he prefers money to be spent on things like education instead of tax cuts.

Deputy House Minority Leader Paul Marquart, DFL-Dilworth, said the House GOP tax plan would spend $5 in tax cuts for every $1 increase in education spending.

The House and Senate kept many of the provisions from last year's legislation, but supersized it.

There certainly are similarities among the three tax plans, but with a $1 billion gap, massive differences are evident.

One of the biggest differences comes in taxing Social Security benefits.

The House-passed bill, approved 80-52 last week, offers a $269 million break for those receiving the federal retirement fund payments. Senators on Monday approved cutting the tax $75 million, while Dayton does not have it on his list.

GOP legislative leaders say they are taking a first step that could lead to eliminating income taxes on Social Security payments all together. Some Democrats warn that the action could result in a gap in state tax collections because as ages increase tax collections will fall.

The Social Security tax cuts come from broader income tax plans. The House proposed cutting income taxes $586 million with a variety of breaks such as for education credits, education savings plans and college loans.

Senators' legislation cuts income taxes $393 million in much the same way as the House, but at generally lower amounts.

Dayton also looks to cut income taxes, with the biggest decrease a $94 million plan to expand the working family credit.

Republican plans give businesses tax cuts, in a way Senate Tax Chairman Roger Chamberlain, R-Lino Lakes, said should help everyone.

He told of a friend who recently moved his business from Minnesota to Wisconsin "due to taxes and other problems."

Chamberlain said such moves to other states cost Minnesota $1 billion annually.

"We have to keep people here, we have to attract people here," Chamberlain said.

The three tax plans mostly agree on the most-discussed provision, replacing some farmland property taxes with state money for part of a school construction assessment.

Dayton would set aside $34 million for the farmland issue in the next two years, slightly less than the Senate. In both cases, the provision would reduce farm property taxes collected for school construction by 40 percent.

The House would cover half of the construction costs charged to farmland with $44 million for 240,000 farmers.

"Farmers have been smothered under a rising tide of property tax levies," House Property Tax Chairman Steve Drazkowski, R-Mazeppa, said.

Drazkowski said the 2017 bill is "step one of a two-step process," to be followed by eliminating all school construction levies from farmland.

Local government state aid also is folded into the tax bill, under the theory that more state aid keeps down local property taxes.

The House keeps state aid at about the same level as in the current budget, while the Senate bill would boost the payments about $20 million and the governor wants to add $30 million.

Davids said that his bill helps cities and counties by eliminating sales tax they pay.

On Monday, Senate DFL'ers strongly but unsuccessfully argued against a provision in the Republican-written tax bill that would provide scholarships to some children to attend other schools. Democrats said the state should not pay for children to attend religious schools,while Republicans said families should have choices.

Marquart said that too much money went to tax cuts. "The tax bill represents 80 percent of the budget deficit," he said.

He and other Democrats suggested moving more money to homeowner property tax relief.

Republicans, however, said big tax cuts will help Minnesota.

With a new president, there are too many questions about the future to cut taxes so deep, Rep. Jennifer Schultz, DFL-Duluth, said. "During a time of economic uncertainty, especially at the federal level, this massive, unnecessary package of handouts for the richest Minnesotans is completely irresponsible."

"For too long hardworking Minnesotans have been overtaxed, which has driven seniors and young families out of our state," said Rep. Matt Grossell, R-Clearbrook. "Our tax relief package is aimed at relieving the burden felt by middle-class Minnesotans. Families with young children, seniors and students are among those middle-class Minnesotans who will benefit the most from the House Republican tax plan."

Don Davis
Don Davis has been the Forum Communications Minnesota Capitol Bureau chief since 2001, covering state government and politics for two dozen newspapers in the state. Don also blogs at Capital Chatter on Areavoices.