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In a divided Minnesota Legislature, nothing divides like a $1.2 billion tax plan

DFLers say their proposed tax plan would provide the resources to make needed investments. Republicans say those funds aren’t resources — they’re taxes. And the money isn’t an investment — it’s just more government spending.

House Speaker Melissa Hortman: “Tax cuts for corporations and the wealthy have exploded income inequality, and our tax bill works to restore some fairness.”
MinnPost photo by Peter Callaghan

They don’t even use the same terminology, though the words they do use say a lot about how far apart they are.

The revenue bill proposed by DFLers in the Legislature would provide $1.2 billion, money that constitutes necessary resources to make needed investments, Democrats say. But for the Republicans in the Minnesota House and Senate, the funds aren’t resources — they’re taxes. And the money isn’t an investment — it’s just more government spending.

There are many issues at play in the 2019 session of the Minnesota Legislature that expose the expanse of philosophical space between the DFL and the GOP. But there’s perhaps no bigger divide than that over taxes —  differences that have only gotten larger as the DFL moves leftward on the issue while the GOP moves further to the right.

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Restoring fairness or wreaking havoc?

On Monday, the DFL House majority released the tax plan they say will add $1.2 billion to the state’s revenues of around $49.8 billion over two years.

House Majority Leader Ryan Winkler
MinnPost photo by Taryn Phaneuf
House Majority Leader Ryan Winkler
“Tax cuts for corporations and the wealthy have exploded income inequality, and our tax bill works to restore some fairness,” said House Speaker Melissa Hortman, DFL-Brooklyn Park. “We close corporate tax loopholes and we ask the wealthy to pay their fair share while expanding the working family tax credit and providing property tax cuts for families and seniors. But years of trickle-down economics and tax cuts for the wealthy have left our schools underfunded,” she said.

Without increases in funding, Hortman said, class sizes will increase, teachers will be laid off and districts will have to get basic funding from local property tax payers.

House Majority Leader Ryan Winkler said the proposal shows that DFLers are putting their tax votes where their mouths were during the election. “We can’t have this for free,” the Golden Valley lawmaker said.

“If we want a world-class education system … we have to pay for it,” which also goes for transportation, he said. “And we’re not shy about putting the price on the table that it costs to actually do these things.”

MinnPost photo by Peter Callaghan
State Sen. Roger Chamberlain
Both sides argue that their positions on taxes speak to populist movements among voters, stances that will be rewarded at the 2020 election. And Republicans’ response to the DFL plan seemed to be offering a test of 2020 campaign messages. “If they get any part of this, there is no way this state can succeed and support this spending. It will shrink and it will disappear,” said Sen. Roger Chamberlain, R-Lino Lakes, who chairs the Senate Taxes Committee. “If you want less of something, you tax it. That’s why they tax cigarettes. If you want more of something you reduce the tax.”

“What math, what universe do you raise taxes $1.3 [billion] in two years and $4 billion over four and say that’s a tax reduction for the state of Minnesota,” Chamberlain said.  “That math doesn’t work in any universe or any planet or any dimension.”

Republicans seemed to be competing with each other to set the dollar amount of the DFL tax increase proposals. Chamberlain called the tax bill $4 billion over four years  — and $8 billion if a 20 cent gas tax hike and is approved and if DFLers succeed in repealing the repeal of the 2 percent provider tax.

Not to be topped, House Minority Leader Kurt Daudt, R-Crown, tossed in cost projections for a paid family leave program to proclaim that “Democrat Tax Increases Top $12 billion (!).”

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“With a $1 billion budget surplus these astronomical tax hikes are unnecessary and will wreak havoc on Minnesota family budgets,” Daudt said in a statement.

What the DFL plan would do

House Taxes Committee Chair Paul Marquart, DFL-Dilworth, said a lot of the added revenue in his plan comes from using two tools that were provided to states by the 2017 federal tax reform bill, the same bill DFLers blame for expanding income inequity.

One, known as repatriation, lets states claw back the foreign profits of state-based corporations. The other lets states tax assets that have been moved to tax havens to avoid state and federal taxes. That one goes by the acronym GILTI, for “Global Intangible Low-Taxed Income.”

“We’re very aggressive on this, and we should be” Marquart said. “We owe it to our residents to get those dollars that should be here in Minnesota.”

The DFL plan also creates a new capital gains tax on the sale of assets other than agricultural land that are worth more than $500,000. The 3 percent rate on that tax would be nearly as high as California’s tops-in-the-nation rate.

House Taxes Committee Chair Paul Marquart
MinnPost photo by Peter Callaghan
House Taxes Committee Chair Paul Marquart said a lot of the added revenue in his plan comes from using two tools that were provided to states by the 2017 federal tax reform bill, the same bill DFLers blame for expanding income inequity.
The DFL leaders said they will use the revenue to pay for increases in state support for education and colleges as well as to reduce taxes on lower-income families. The biggest reduction would involve exempting from taxes all income up to $32,900 for a family of four, which would be the third-highest “zero-tax bracket” among U.S. states.

The House DFL plan also adds eligibility for the state working family tax credit and exempts more Social Security income from state taxation. The state would also increase the standard deduction to the same $24,000 for married filers as is in the federal tax law. Marquardt estimates that two-thirds of tax filers will see a reduction in taxes and that 93 percent will choose not to itemize their personal income tax filings.

Gov. Tim Walz also has a tax plan, which takes the federal tax reform authority to reclaim foreign-based income and reduces some corporate tax deductions. Like the House DFL plan, it also expands the family tax credit and the amount of non-taxed Social Security income so that 56 percent of seniors would not pay taxes on income from the program.

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What the GOP wants

The Senate GOP tax plan will be released after the Easter-Passover legislative break, Chamberlain said. In previewing the plan, though, he returned to a line Republicans have rehearsed throughout the session.

“I’ve been saying for a couple of years, my goal here in the Minnesota Senate is to make life simpler and easier for Minnesotans, to relieve them of some of their burdens and give them some opportunity and hope,” he said.

The proposal is likely to include some lower-bracket rate cuts, similar to what was in the Senate GOP plan in 2018 that was vetoed by then-Gov. Mark Dayton. But Chamberlain was not interested in repatriation and tax-haven provisions suggested to the states by fellow Republican Paul Ryan, the former U.S. House Speaker from Appleton, Wisconsin.

“We don’t affiliate with Paul Ryan,” Chamberlain said. “God bless him, but he has nothing to do with the great state of Minnesota. We affiliate with us and we do what we think is right for the state of Minnesota. That repatriation money, if they try to grab that and tax it, there will be a lawsuit. It is unconstitutional.”

(Marquart said he is confident both tax measures are legal and variations of what he’s proposing have been successfully defended in the past.)

A ‘long way to go’

Do the vast differences between DFL tax proposals and GOP rejection of those proposals set up an intractable stalemate as the session approaches May 20 adjournment?

Walz doesn’t think so, necessarily. “That’s the art of democracy, it’s the art of compromise,” the governor said. “I still remain hopeful. This is hard work. I do think there’s some goals we can agree on. Some of the policy proposals, though, there is a vast difference.”

There are suggestions that the House and Senate budget bills being finished this week in each house are starting positions. But is there something in between tax increases and no new taxes?

Republicans say no. But Walz is outwardly optimistic. “I know there’s a tendency in this business to shoot way to one side of your proposal with the idea, so that then the middle place is palpable to both,” he said. “There may be a little bit of that going on. We’ll see.”

With actual bill language being available, the Senate has to show what won’t be funded and what will, said Walz. “It’s one thing to say to go out in front of people and say we’re not going to raise fees on you,” he said. “It’s quite another to show how many teachers’ jobs it’s going to mean back in your home community. That’s what’s starting to come out now. There’s a long ways to go.”

Chamberlain said he would conduct a hearing on the Walz tax plan, but he described it as a courtesy. He also said he wouldn’t allow his committee to take a vote on the plan.

When asked why not, he offered a simple answer: “It’s a tax increase,” he said.