Untax the rich? Dayton offers different tone this year with gift, estate tax proposals

Office of the Governor
It appears that Gov. Mark Dayton is set to eliminate the gift tax, which he signed into law last spring.

Gov. Mark Dayton, who used the theme “tax the rich’’ to win office, is expected to announce Wednesday a few ideas that sound like “untax the rich.’’ 

In his supplemental budget, the governor is expected to make significant changes in two taxes, a gift tax and an estate tax,  that are unpopular with the state’s wealthiest.

It appears that the governor is set to eliminate the gift tax, which he signed into law last spring, and align the state’s estate tax with federal estate tax law.

Of course, Dayton’s not alone in pushing tax cuts. House DFLers are racing to pass a broad-based bill that would cut personal and business taxes by $500 million. Senate DFLers, moving at a more modest pace, also are pushing cuts.

Republicans claim to be astonished as they see their DFL counterparts whack, hammer and cut taxes.

“For Democrats to race to the table with tax cuts is not just amazing, it’s a good day for Minnesota,’’ said Rep. Greg Davids, R-Preston. “I have to say they’re not going far enough, but at least it’s a start.’’

Good economy or election politics?

One reason for the DFL’s tax-cut fever are the string of favorable economic forecasts showing the state with a fat cash surplus even in outlying years.

Republicans  suspect there may be another reason for the DFLers to be in such a tax-cutting mood: It’s an election year.

But DFLers insist it’s not the specter of November elections that’s creating the flood of cuts.

They use words such as “balance’’ to describe the various cuts that Dayton hopes to have on his desk by the middle of this month.

“At the end of this session, we are going to be able to say we’ve done things in a balanced way,’’ said Rep. Tom Anzelc, DFL-Balsam Township.

Anzelc ticked off the “balanced’’ agenda: a hike in the minimum wage, cuts to taxes for those in the middle class, elimination of the business-to-business taxes that the DFL Senate demanded last session, a sizeable bonding bill and “some strategic spending for things like propane and school lunches.’’

Gift, estate taxes targeted

Still, the push by Dayton to eliminate the gift tax and lessen the burden of the estate tax stand out. These changes will benefit the few, the wealthy.

Hmmm. Imagine a DFL bumper sticker that reads: Empathy for the Rich. 

Sen. Dave Thompson
Sen. Dave Thompson

Sen. Dave Thompson, R-Lakeville, is a leading GOP candidate for governor. He raises this point on the estate and gift taxes: “The estate and gift taxes we now have are an incentive for people to leave Minnesota.’’

Look out the window and you may see other reasons that people of even modest means would leave the state.

But DFLers seem to accept Thompson’s premise.  Those taxes leave Minnesota in the position of being an “outlier’’ state, some DFLers note. 

The gift tax, which was pushed into last year’s omnibus tax package by the DFL-led Senate, isn’t exactly a problem for middle-class Minnesotans. Nonetheless, it’s a tax not present in most states.

It works like this: You are allowed to give $14,000 to each of your children, their spouses and children up to $14,000 each year, with a lifetime cap of $1 million. (That cap is $2 million for you and your spouse.) After that cap is hit, there’s a tax of 10 percent on the amount that’s more than $1 million (or $2 million including a spouse).

Put it this way. Say you’ve got two grown kids, who are married. Each of the couples has two kids. That means you could give them $112,000 this year without any tax consequence.

Let’s repeat: This is not a problem for most. Yet,  it is expected Dayton will ask the Legislature to eliminate that tax.

Like the gift tax, the estate tax doesn’t cause most Minnesotans to lose sleep at night.

Federal conformity sought

Currently, there’s a tax on the amount that’s more than $1 million in a Minnesota estate.  Dayton is expected to seek conformity with the federal estate tax law. The feds don’t tax on an estate until it reaches more than $5.25 million.

It should be noted there are substantial exemptions and exclusions to the estate tax for some. For example, small farmers in Minnesota are not hit by the $1 million tax, the theory being that many farmers are “land rich and cash poor.’’

Rep. Greg Davids
Rep. Greg Davids

In 2011, the Legislature passed a law that allowed farmers and some small businesses to leave estates with a value of $5 million, before the estate tax kicked in.

“If you’re a farmer in Fillmore County with 100 acres, you are cash poor and land rich,’’ said Davids of the special arrangement for farmers. “The only way some could pay the estate tax was to sell some of the land.’’

Until these two Dayton proposals go through the legislative grind, it’s hard to say how much the changes will cost the state. But it’s expected significant changes in the two taxes could cost the state about $100 million annually, beginning in 2015.

Not surprisingly, Republicans are saying that the expected Dayton proposals and the push to eliminate the business-to-business and warehouse taxes that came last session are proof that the GOP was right all along.

“Tax-and-spend policies fail,’’ said Thompson. “Tax-and-spend policies haven’t worked in Illinois, and they haven’t worked in California and they won’t work in Minnesota either.’’

Dayton, he believes, is proposing the changes because it’s an election year.

“The governor realizes that some serious damage has been done to himself and the state’s ability to compete,’’ Thompson said.

DFL touts its role

DFLers counter by saying that it was because they’ve put the state’s financial house in order and re-invested in things (such as education) that make Minnesota outperform the nation. Those dynamics, they say, are leading to the surpluses that are making tax cuts possible.

DFLers also bristle at the slogan the GOP is now tossing around whenever two or more are gathered together.

“Give it back’’ is the Republican mantra for how to deal with the surplus. They claim they want to give it “all” back.

Rep. Tom Anzelc

In fact, however, DFLers point out that their GOP colleagues have been quick to support spending $20 million on a depleted propane fund. Most in the GOP also want a 5 percent increase for funding the state’s nursing homes, money that would end up in improving the wages of nursing home workers. That would cost around $86 million.

Still,  it’s been years since there’s been so many DFLers talking tax cuts.

Davids points to something else that he believes is unique this year: a Star Tribune editorial with the headline “Move quickly to cut Minnesota taxes.’’  Like most Republicans, Davids has long considered the Star Tribune to be far to the left politically.

Davids, a hard-nosed conservative with a sense of humor, was holding up the editorial in his office Tuesday.

“I’m having this enlarged,’’ he said. “It’s suitable for framing. Never in my life did I think I’d see a Star Tribune editorial calling for tax cuts.’’

Comments (31)

  1. Submitted by Paul Brandon on 03/05/2014 - 09:34 am.

    Aligning State and Federal

    tax structures seems reasonable.
    Unlike the GOP, the DFL is not talking about -eliminating- estate or gift taxes, just adjusting them to the Federal level.

    As for Rep. Davids, he’s saying that farmers should have both the monetary value of their land and the land itself. What other commodity works that way?
    You can borrow against the value of your assets, but that’s temporary. If you can’t pay it back you lose it.

  2. Submitted by Cameron Parkhurst on 03/05/2014 - 09:50 am.

    Some corrections

    The Federal Estate Tax exemption is indexed for inflation and for deaths in 2014 the amount is $5,340,000. And the annual exclusion amount of $14,000 does not count toward the Minnesota Gift Tax lifetime credit of $1,000,000.

  3. Submitted by Ray Lewis on 03/05/2014 - 10:23 am.

    Anticipated costs and future investments

    Has anyone brought up other anticipated costs such as the sex offender program and driver license look-up liability in the budget surplus dialog?

    Similar to a property owner, the state also has other “deferred maintenance” issues where a little investment now might reduce future costs if we thought in a longer time frame than the next election.

  4. Submitted by Mike Downing on 03/05/2014 - 10:46 am.

    “Untax the rich?”

    This is a warped view personal property. “Untax the rich?” can only be rationalized if you believe personal property is not personally earned & owned but is owned by government.

  5. Submitted by Arito Moerair on 03/05/2014 - 11:54 am.

    Leave MN?

    Has anyone done an actual study on whether people have left (or will leave) Minnesota if they think their taxes are too high? By “leaving,” I don’t mean simply moving assets. I mean uprooting your family, selling your house, abandoning your friends, moving your children to different schools in a different state, etc., etc. Doing all this to “stick it to the man.”

    And how many people are really affected by these taxes that we are seeking to eliminate?

    Someone should come clean with a study or tell Republicans to put up or shut up with this bogus talking point.

    • Submitted by Steve Titterud on 03/05/2014 - 01:45 pm.

      It’s been studied plenty.

      see http://www.policymattersohio.org/migrationpr-mar2013 about “The Tax Flight Myth”

      see http://www.umass.edu/newsoffice/article/employment-not-taxes-drives-families%E2%80%99-decisions-move-across-state-lines-says-study-political

      Also, from http://www.cbpp.org/cms/?fa=view&id=1034 regarding seniors:

      “…most cite family, job or housing related reasons for the move. In addition, separate studies by Wisconsin and Iowa of the patterns of in- and out- migration of seniors conclude that tax levels appear to have no effect on these patterns.”

      Study after study concludes the same: “…the impact of taxes on cross-state migration is very weak. Other factors―primarily employment and family concerns―provide the main reasons that families move. And family ties, comfort with their community, jobs, the costs of moving, and valuing the public services in their state are why families stay put, regardless of their state’s tax rates.” (UMass link above)…and…

      [The study confirms that public services can influence cross-state migration. By increasing higher-education enrollment, decreasing property crime, or improving housing affordability, for example, states can attract and retain people. “Regardless of how they feel about the tax itself, people value the public services paid for with those taxes,” said Thompson. “Most important for the issue of migration, though, is the job opportunities that the state government creates by spending that tax revenue.” ]

      This “Pack up the kids and the furniture !! We’re moving to Alabama, honey. I just can’t stand the taxes here anymore !!” refrain from the right is the kind of hay that’s been through the bull already.

      But its falsehood doesn’t matter to the true believers – not at all !! – as its mere repetition makes them feel good. Besides, who knows ? Maybe the endless repetition will lead to some people adopting it as a belief.

      • Submitted by Tim Milner on 03/05/2014 - 03:25 pm.

        This is an estate issue that

        really pertains to retirees. And yes, there are a number of MN who spend a lot of time in warm weather states during the winter. We really don’t want to encourage them to change their residency by having our laws different from those of the Feds.

      • Submitted by John Appelen on 03/05/2014 - 07:50 pm.

        I agree with Tim

        My retired parents bought a beautiful home on a spring fed lake in Eastern SD… The tax savings almost make the payments…

        Remember, those retirees with money have the freedom to choose any state for their residence as long as they are willing to spend 6+ months there… And since most of the “rich” are older… This is a factor that can not be ignored.

        • Submitted by Steve Titterud on 03/06/2014 - 07:39 am.

          Yes, your anecdote is interesting, but…

          …it is an anecdote, or single data point. I’m not saying there aren’t others, or that we should totally ignore similar situations, but where are the responsible studies or surveys that show your parents’ case is at all typical ?

          See above post for citations of studies on this issue.

          Also, see a Pew study from 2008 at http://www.pewsocialtrends.org/2008/12/17/who-moves-who-stays-put-wheres-home/. It shows the following data on relative incidence of major reasons for moving:

          44% Job or business
          36% Good place to raise children
          35% Family ties
          29% Education or schooling
          24% Cost of living
          18% Climate
          17% Recreational and outdoor activities
          13% Retirement
          11% Medical or health reasons
          10% Cultural activities

          Tax policies of one state vs. another didn’t even make it onto this list, although it could be seen as a partial contributor to reason #5.

        • Submitted by Steve Titterud on 03/06/2014 - 07:44 am.

          The Pew study link location is actually at…

          http://pewsocialtrends.org/files/2011/04/American-Mobility-Report-updated-12-29-08.pdf

          Sorry, previous link given above was to an article about the study.

          • Submitted by Tim Milner on 03/06/2014 - 03:45 pm.

            The Pew study states

            “The data are weighted to produce a final sample that is representative of the general population of adults in the continental United States”

            It was not specific to the observation I made – that seniors with homes in other states should not be encouraged to change their state of residency based on MN’s tax laws not confirming to Federal tax laws.

            • Submitted by Steve Titterud on 03/06/2014 - 05:24 pm.

              There IS data in the study specific to retirees, seniors, and…

              …specific to income level, etc. – but I agree that the table quoted covers all groupings in its sample. If you drill down a little, you can find info that DOES characterize the factors in the move decisions of the group in question. I see not a twit’s worth of evidence in the study that tax laws are a factor.

              You have not indicated any factual studies or surveys which support your implication that these people in fact change their state of residency due to state tax laws vs. Fed laws. A few facts would help make your point, and I’m willing to be persuaded, but not by mere speculation.

              • Submitted by George Carlson on 03/07/2014 - 12:20 am.

                Estate tax proposals

                The study is probably a national study. But consider a well-off Minnesota retiree.

                If you are well off, not super wealthy. Maybe you retirement plan, other investments, and home together are worth 1.5 to two million. Your social security, pension, and investments provide a yearly income of $100,00 to $150,000. You’ve worked hard, saved your money and you’re well off, but not rich.

                What do retired people in that situation do in the winter? Many, if not most of them, spend one to four months some place warm, probably Florida or Arizona. And then they realize that if they spend a little more than 6 months in Florida they don’t have to pay $10,000 or more yearly in Minnesota income tax. And their estate won’t be hit with $150,000 or more going to Minnesota in estate taxes.

                It’s almost a no-brainer. And a lot of Minnesotans have figured this out. Jerry’s supermarket from Edina has a store on Sanibel Island catering to the crowd from Edina that live there and that probably have established Florida residency. I personally know several couples that come back to Minnesota for less than 6 months so they have a low-tax residency.

        • Submitted by Logan Foreman on 03/06/2014 - 09:58 pm.

          Good for them

          The retired people I know would not think about living in SD. How often are your parents coming back to civilization?

          • Submitted by John Appelen on 03/07/2014 - 08:42 am.

            Farm Folks…

            Winters in Pompano Beach FL. Summers on a beautiful lake. They visit “civilization” once in awhile in between.

            Since I grew up as one of those “uncivilized” farm boys, it sounds like a pretty good life to me. Besides Eastern SD and Western MN are pretty much identical except the taxes are lower in SD.

            • Submitted by Rachel Kahler on 03/11/2014 - 01:34 pm.

              SD

              Having grown up in SD, while still visiting frequently for family, I’ve found that SD is not an ideal place for seniors unless they can afford to transport themselves elsewhere for any any ailment, travel to somewhere else for entertainment (unless they find small, dark rooms with gambling machines entertaining), and enjoy waiting for children and/or grandchildren to never come because there are no decent job opportunities. Also, good luck with decent housing and services. They don’t exist in SD. SD and western MN are shrinking in population at the same rate–it’s got nothing to do with taxes.
              http://www.newgeography.com/content/002153-census-2010-offers-portrait-america-transition

              • Submitted by John Appelen on 03/11/2014 - 06:46 pm.

                Sioux Falls

                You need to spend more time in Brookings, Sioux Falls, Vermillion and Watertown.

                3 of the 4 have Universities and a variety of entertainment. And Watertown is becoming a manufacturers dream. Of course if you want professional sports, plays and concerts in expensive stadiums and auditoriums, then the Twin Cities definitely has them beat. Though Siox Falls has been adding these.

                Of course then you have to be able to afford those expensive tickets.

                As for housing, they build new houses there also. And the lots cost less.

                And I do agree though, Ipswich SD may be a bit dull for most Minnesotans… Though if you like hunting, it is probably heaven. I know college friends from there liked it.
                http://www.ipswich-sd.com/

                • Submitted by Rachel Kahler on 03/12/2014 - 11:59 am.

                  I have

                  Brookings is the only one I’d consider to be relatively nice. But it still doesn’t have a lot of things seniors need, especially if you’re not able to build new, which MOST are not. Cheap housing doesn’t cut it if it’s not built for people with decreasing or limited mobility.

                  Regarding the price of housing, there’s not that much difference between the housing costs here and there in many places. Granted, I haven’t looked at housing prices in Watertown, but Brookings, Aberdeen, and especially Sioux Falls, have housing and land prices that are ridiculously high. And SD relies very heavily on property taxes, which are significantly higher than in MN. http://hbaofgreenville.blogspot.com/2011/08/nahb-study-reports-on-effective.html

                  As for “expensive tickets,” you’re assuming I’m even talking about things that require expensive tickets.

                  The fact of the matter is that your parents aren’t the norm, and even if they were, you are ignoring a lot of significant issues. The numbers provide a good indicator that your assumptions are incorrect.

    • Submitted by Tom Anderson on 03/05/2014 - 09:20 pm.

      Well….

      “And how many people are really affected by these taxes that we are seeking to eliminate?”

      Only enough people to pay over 50% of the tax revenue collected by the State. It isn’t so much the number of people but the massive amount of money that they contribute in taxes.

  6. Submitted by Dennis Tester on 03/05/2014 - 12:01 pm.

    It’s instructive

    that in election years, this one in particular, democrats feel the need to sound like republicans.

    If every year was an election year, we’d all be better off.

    • Submitted by John Appelen on 03/05/2014 - 07:52 pm.

      Alleluia Brother !!!

      That may help keep the GOP focused also.

    • Submitted by Logan Foreman on 03/06/2014 - 07:58 am.

      What is instructive Tester

      Is that every year republicans feel the need to protect the rich and the corporations and ignore the real challenges of the middle class and the poor

  7. Submitted by Geo. Greene on 03/05/2014 - 12:59 pm.

    The only reason the GOP is astonished…

    … that the Gov would propose lowering taxes is that they believe their own propaganda that all DFLers want to do is raise taxes for the sake of raising taxes.

    Here in the adult world, if the budget looks good and we don’t have to keep a tax then we don’t have to, plain and simple. We like our tax cuts as much as the next guy.

    We look at things differently: DFLers look at what we, as citizens, decide needs to be done that can’t be done efficiently or fairly (or just isn’t) done by the private sector and then tax to pay for it. Republicans look at it the other way ’round. Tally it all up and assume most of it is wasted -especially if any of it goes to the “undeserving” classes -i.e.anyone not already set up with a job, health insurance, education -or not rich. Doesn’t matter how a program benefits the state over the long term, taxes must always be lowered. Even if they are lower historically and in comparison to the rest of the developed world.

    • Submitted by Lance Groth on 03/05/2014 - 02:03 pm.

      Indeed

      You beat me to it. Another way to phrase it is that Repubs stick to “principle” regardless of the objective reality that the state or nation finds itself in. Dems take a more practical stance, adapting to conditions as they present themselves.

      One need only compare the Pawlenty years to the Dayton years to see this in action, and what effect they each had on the state. I know which model I prefer.

  8. Submitted by Bill Coleman on 03/05/2014 - 02:10 pm.

    Funny that…

    When Dayton came into office, the GOP predicted that our economy would crash under the burden of the tax increases. They were certainly wrong about that!

    Now that the state’s financial crisis is over, it seems that the DFL moving towards tax simplicity by aligning with federal provisions seems like a decent move.

    Of course, now the GOP wants to “give all the money back” just as in the “Jessie checks” years that put the state on the financial precipice when the economy crashed a year or two later. It would be nice if they would learn a bit from recent history!

  9. Submitted by Henk Tobias on 03/05/2014 - 08:32 pm.

    DIdn’t we have a major bridge fall down recently?

    I suspect that wasn’t because we over invested in our infrastructure. So now we’ve got a few extra buck and the first thing we think about is tax cuts? Short sighted is putting it kindly.

  10. Submitted by Robert Gauthier on 03/05/2014 - 11:35 pm.

    Amazing to hear of the hardship of Fillmore farmers

    Who have gotten federal and state handouts for years and now see their likely inherited land as a birthright. So what if they sell land? How many urban estates have to sell assets or homes to satisfy estate bills? That is how it is for EVERYONE. That is not a hardship visited on Fillmore County. Did they ask my opinion when the state paved their roads to help them get their crops to market? Did they ask my opinion when rural legislators raised my property taxes in 2010 to give their districts more?

  11. Submitted by richard owens on 03/06/2014 - 07:02 am.

    Republicans: Watch and Learn

    Governing by shock and crisis isn’t necessary.

    A Reserve keeps the state steady through business cycles.

    Rhetorical confrontation and budgetary angst isn’t necessary to do the People’s business. Thoughtful cooperative efforts WORK!

    The current environment at the Capitol may finally allow us to consider the caregivers at Minnesota’s long term care organizations. These people have waited for YEARS to be treated with fiscal respect.

    Maybe it can be a Republican who speaks up for THEM.

    Both sides can change our stereotypes if that happens.

  12. Submitted by Cameron Parkhurst on 03/06/2014 - 08:32 pm.

    Reaching a taxable MN estate is not that hard

    when you own a mostly paid for home and a cabin up north. And have a life insurance policy that you own. Bingo, you have a taxable estate for MN estate tax purposes. Estate tax and gift tax policy and implementation or somewhat more complicated than Mr. Grow’s article states, but these two things do impact more people than you might suspect. And the gift tax is poorly written and has elements that will likely impact larger scale charitable giving after a few years.

  13. Submitted by Mike Downing on 03/09/2014 - 07:45 am.

    MN needs to remain competitive

    Many Minnesotans were born, raised, live there life and will die in MN without realizing there are other great states to live in and retire in. MN is not competitive with other states for retirees.

    This measure is a very minor step towards becoming competitive with other states. Perhaps the DFL would like to reform property taxes since retirees pay 10, 20 & 30% of their income on property taxes. Perhaps the DFL would like to address the double taxation of Social Security. We pay taxes on our income before we pay our SS when we work and we pay taxes on our SS benefits after we retire.

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