State House DFLers have unveiled a second package of tax cuts for the 2014 session with the ink barely dry on a tax deal passed by legislators and the governor last week.
The new $103 million tax-cut proposal, which passed out of the House Taxes Committee Thursday evening, would fix some issues with last year’s tax bill while giving many renters, homeowners and farmers property-tax relief through one-time refunds this year. Lawmakers are debating how to spend a $1.2 billion budget surplus this year.
“We have the surplus, so it seems like a legitimate way to return some of the surplus is in one-time infusions to homeowners, renters and farmers to help them pay their property taxes,” House Taxes Chairwoman Ann Lenczewski said. “We didn’t achieve all of the things we wanted [in the first tax bill].”
House DFLers have been moving swiftly this session, leaving Gov. Mark Dayton’s administration and Senate Democrats playing catch up in crafting their own proposals. House DFLers passed their first package of tax cuts just more than a week after the session began, but it wasn’t until three weeks into the session when all three parties came together and passed a $443 million proposal that repealed three business-to-business taxes passed last year and conformed some state and federal taxes.
But the second tax proposal has drawn the ire of some House Republicans, who say DFLers are setting up property-tax refund checks to land in Minnesotans’ mailboxes right around Election Day. All House members are up for re-election this fall.
“It’s quite cynical in my mind. [The checks] might as well say, ‘Prepared and paid for by the DFL Party of Minnesota,’” GOP Rep. Greg Davids, a former tax chairman, said of the refunds. “They should be supporting good tax policy, not political tax policy.”
Focus on property-tax cuts
Roughly half — $45 million — of the second House tax-cut bill would go toward targeted property-tax relief.
The bill provides a one-time 6 percent increase for all Renters’ Credit Refunds paid in 2014, which will hit about 350,000 Minnesotans who qualify for the refunds, House Democrats say. There’s also a one-time 3 percent increase in refunds for about 500,000 Minnesota homeowners who qualify for the Homestead Credit Refund.
The second tax bill also enhances the market-value credit for homesteaded farms, which have suffered from a huge increase in property taxes over the last year. That means about 90,000 farm families could see an average of $460 in property-tax relief this year, according to House Democrats. DFL Rep. Jim Davnie, who chairs the House Property Tax Division, said this is on top of about $133 million in direct property-tax relief for homeowners and renters that passed last year.
“This year is the first time in 12 years that Minnesotans will actually net pay less in property taxes than they did the year before,” Davnie, of Minneapolis, said.
But in committee, GOP Rep. Pat Garofalo joked that the refunds should be called the “Re-elect Paul Marquart checks,” because they would arrive just in time to help rural members like Marquart win elections this fall.
The new tax proposal would also include a group that was left out of the 2013 tax bill.
Joint-powers arrangements — where different local governments team up to cut costs on anything from law enforcement to snow plowing — found out last year that they don’t qualify for the sales-tax exemption for local governments provided in last year’s tax proposal.
The House proposes to make those entities qualify for the sales tax, but not until July of 2015. Local government groups have asked lawmakers reconsider and exempt them sooner.
Other provisions in the second House tax bill include:
Property-tax cuts for businesses with property value less than $1.1 million and some sales-tax cuts for small businesses.
An expansion of the definition of research and development to things like transportation and tourism to help spread angel-investor tax credits to rural Minnesota.
A provision tying Local Government Aid (LGA) to inflation.
Senate drafting tax bill
Senators have been working through proposals for a second tax bill in committees this week, but leaders are quiet on what could be included in the final version.
Tax Reform Division Chairwoman Ann Rest said they are looking hard at including joint-powers arrangements in their tax proposal, and they plan to review the House provisions on property taxes.
“We are actually hoping to work very closely with [the House] to move a tax bill along as quickly as we can,” Rest said. “We are open but we are reviewing.”
Negotiations over the first tax package broke down between DFL leaders and DFLer Dayton when the governor accused senators of holding the time-sensitive proposal hostage in order to move a stalled $90 million Senate office building project forward.
Department of Revenue Commissioner Myron Frans said the administration is currently drafting a second tax proposal, and he said he’s interested in the House’s move to cut property taxes even deeper.
“This is an area we are certainly willing to discuss with the House, and it’s certainly something we have some interest in,” Frans said.
Dayton has proposed to cut taxes deeper than either the House or the Senate this year, originally unveiling a $616 million tax-cut proposal as part of his supplemental budget. Frans said those are the budget targets he’s still working from. The governor has also shown a strong interest in increasing the state’s spending on the child care tax credit to make it available to all families.
“The governor felt strongly that we should give about half [of the surplus] back in tax breaks,” Frans said. “We are still looking at about half of it in tax breaks as an important goal, but one we will have to analyze in terms of what the House wants to do and what the Senate wants to do.”