Dayton plan for tax cuts divides Democrats

Gov. Mark Dayton's proposal to use more than half of a projected $825 million budget surplus to cut taxes is receiving a mixed reception from his party's tax leaders.

State Rep. Ann Lenczewski, DFL-Bloomington, the chair of the House Tax Committee, has offered early and enthusiastic support. But her counterpart in the other chamber, state Sen. Rod Skoe of Clearbrook, is not yet convinced that any changes are needed, and that includes Dayton's plan to sync state tax policy with federal law.

Dayton said last week that if the latest economic forecast holds, he wants to use $231 million of the projected surplus to repeal the three business-to-business sales taxes passed last session. He also would use $205 million for a middle class tax cut.

"That would include eliminating the marriage penalty, which would reduce state taxes for some 640,000 Minnesota taxpayers," the governor said. "It would also include increasing the working family credit, which would lower state taxes for about 53,000 taxpayers."

House Democrats passed legislation last session to provide those same middle-class tax breaks by lining up state tax laws with several recent federal changes. But those provisions fell by the wayside when Senate Democrats didn't do the same.

"We weren't successful last year, but we're excited that it sounds like the governor would like to take a good look at them this year if we can get them done," Lenczewski said. "So, I think that sounds wonderful."

Lenczewski said she was happy the governor highlighted the two most expensive federal conformity changes. But she said several other changes are also needed to cover deductions on things like mortgage insurance, student-loan interest and employer-paid adoption benefits. Lenczewski said conforming to federal law makes things simpler for taxpayers.

"When you go in and file your taxes, you don't have to finish your federal form and then go over to your Minnesota form and do them all over again, add back things and change everything," she said. "So, federal conformity really erases all kinds of complexity from the filer's perspective, whether it's an individual, a single person a married person or a business."

But Skoe, chair of the Senate Tax Committee, has a different idea for the projected surplus. He wants to replenish budget reserves to help the state weather any future economic downturns.

Skoe said he plans to look at the governor's proposal in the next session, which begins on Feb. 25. But he cautioned that tax cuts are not necessarily the best direction to go right now, and that goes for federal conformity too.

"That is, as it was last year, prioritized along with all the other needs that we have," Skoe said. "So, we'll see where the resources are best utilized, and if it becomes conformity, I think that's important. But today I'm not going to say it's the most important area that we have to deal with."

Republicans strongly support the repeal of new sales taxes on equipment repair, telecommunication purchases and warehousing services. State Rep. Greg Davids, R-Preston, said he wants to help the governor eliminate those businesses taxes, as well as the so-called marriage penalty.

But Davids said Dayton's proposed increase of the working family credit could be a problem.

"What will happen there is you can have cases where people haven't even paid taxes, and they get refunds because they are lower income," Davids said. "So, I have a philosophical problem with getting a tax refund when you didn't pay any taxes in. But I'll certainly want to see how the governor structures that, and I'm certainly open to the debate."