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Which tax provisions will survive?

MinnPost photo by James Nord
Yesterday, after an inexplicable and embarrassing false start, the Minnesota State Senate passed its version of the omnibus tax bill.

Yesterday, after an inexplicable and embarrassing false start, the Minnesota State Senate passed its version of the omnibus tax bill.  The bill now moves to conference committee where it will be reconciled against the House’s version of the bill as well as Governor Mark Dayton’s budget proposal.  This may prove to be more work than expected, given that all three parties in the negotiations are DFL-controlled.

On a net basis (tax increases less new aids and credits), all three proposals raise between $1.5 and $1.7 billion dollars, but they get there in notably different ways:

tax proposals summary

Let’s dig into the details.  Here are some of the key provisions in each plan:

tax proposals details

Some elements should come together pretty quickly:  increasing LGA, increases to tobacco taxes, and reduction/removal of corporate exemptions for foreign source royalties and operating companies.

Other pieces are going to be more difficult.  House DFLers have committed themselves to paying off the remaining K-12 funding shift this session.  The temporary 4% surcharge on income is designed to get them to that point, raising $1.2 billion on its own.  However, both Dayton and Senate Democrats have listed the surcharge as not acceptable, and neither of them make any moves towards paying off the shift in their proposals.

Meanwhile, the Senate has stayed committed to advancing sales tax reform — proposing an expansion in goods and services subject to taxation while lowering the rate to 6% — while Dayton (in his updated budget) and House DFLers have stayed away from such proposals.

House DFLers have also advanced an increase in alcohol taxes that has run into substantial controversy.  Neither Dayton nor the Senate have embraced such a proposal.

So how do we get to a final bill?  Well, as it turns out, much of the Governor’s proposal ends up serving as a middle ground between the legislative proposals.  Dayton’s income tax rate increase on the wealthy touches a smaller group of taxpayers than the Senate version, which may be acceptable to the House. But in order to get the House on board, Dayton and the Senate are going to have to make a significant move towards paying back the school shift.  How to do that?  By adopting the Senate’s cigarette tax revenue plan or the House’s plan which includes alcohol tax increases.  The House is likely also going to have to scale back (or eliminate) their property tax reforms.  Taking those steps should be able to ensure that at least half of the remaining shift is paid off.

With less than three weeks remaining in the legislative session, DFLers haven’t given themselves much time to hash through these issues, given the fragile nature of the coalitions they have had to put together to get these bills through the respective chambers.  It will be interesting to watch and see how the negotiations unfold.

This post was written by Sean Olsen and originally published on Brick City Blog. Follow Sean on Twitter: @sean_olsen

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