Gov. Mark Dayton and DFL legislative leaders came together Thursday on major elements of a tax compromise — a deal that raises some fascinating economic and political questions.
The package includes Dayton’s plan to raise taxes on Minnesotans in the upper 2 percent of income, establishing a new top tax rate of 9.85 percent on taxable income of more than $150,000 for individual filers and $250,000 for couples. That would give Minnesota the fourth-highest tax rate in the nation.
The latest version of the tax bill also includes a $1.60-a-pack increase in the state cigarette tax but no increase in liquor taxes. It also includes provisions intended to hold down local property taxes.
Business groups vigorously oppose the income tax increase, saying it will harm 20,000 small business owners who pay individual income taxes on their business income. They also worry about its impact on Minnesota’s ability to attract and retain business, and on the ability of corporations to recruit higher-wage managers and professionals. But the governor and DFL legislative leaders remain unconvinced.
If the two houses go along, Minnesota will test competing theories about how business executives make locational decisions – about whether they care more about taxes or the quality of education, workforce training and other services the state provides. The answer most likely varies depending on the type of enterprise, but the bottom line is that both factors are important.
Interestingly, House DFLers on Thursday abandoned their proposal to levy a surcharge on the state’s wealthiest residents – on top of the new top tax rate – and pay back the remaining $860 million from the school aid shift used to help balance previous state budgets. Instead, they’ll go along with the governor’s plan to repay the shift in four years rather than two.
Repaying the shift had been a major issue used by DFLers in the last campaign. But the fact is that it is largely an accounting fix. It won’t give school districts one additional dollar to pay teachers, fund all-day kindergarten and or meet other needs. For schools – and for DFLers – it’s far more important to put more money into the school aid formula, as they plan to do.
As legislators race toward Monday’s midnight deadline for adjournment, there still is a game of high-stakes poker — with potentially big political consequences — being played on other issues. They include:
House DFLers want to increase the state minimum wage from $6.15 an hour to $9.50, while Senate DFLers say they’d rather go home without an increase than go beyond $7.75. An increase in the minimum wage is a top priority of organized labor, and my bet is that a deal still will get done.
Every day, there seems to be a new proposal to plug the hole in the $977 million stadium funding plan that was caused by a major shortfall in revenues from electronic pull tabs. Dayton pushed hard for the stadium last session and has the most to lose if the funding plan falters. So he’s likely to win some kind of fix – even if it means diverting revenues that would otherwise go into the state’s general fund and help meet other state needs.
Transit advocates still are pushing for a half-cent increase in the existing quarter-cent metro sales tax for transit, which they argue is critical to going forward with the Southwest Corridor light-rail transit (LRT) project and continuing to expand the regional transit system. The Senate has coupled the transit tax increase with a nickel-a-gallon increase in the gasoline tax, which is dedicated for highways. But the governor and House members – both up for re-election next year – won’t go along. This still looks like a long shot.
Work to be done
So, as always, legislative leaders have left an enormous amount of work to be completed in the final several days of the session. This will mean some long nights during which members get tired, cranky and prone to missteps. It also means that members of the Republican minority will have opportunities to erect obstacles and slow things down.
Whether Minnesota state government is controlled by Republicans, DFLers or a combination of the two, the concluding days of any legislative session inevitably are messy.
The House, Senate and governor have institutional differences that influence their agendas and decision-making. The governor and members of the Senate have four-year terms that permit longer-term thinking, while House members always are looking to the next election.
The governor has a statewide constituency, while the Legislature represents a collection of smaller constituencies – urban and rural, fully-developed and fast-growing suburbs, regional centers and small towns with one traffic light.
There’s also the influence of testosterone levels in this still male-dominated system of government. These folks all are very competitive and they all want to win. I remember talking to a succession of House DFLers who served on the school aid conference committee in the 1970s and ‘80s, and all of them vowed never again to sit across the table from their Senate DFL counterparts.
Suffice it to say, if the closing days of the legislative session were an Olympic ice-skating event, the judges would not be awarding a lot of “style” points.