Senate tax bill runs into trouble on the floor, but ultimately passes

In an embarrassing misstep, the Senate’s omnibus tax bill was initially defeated on a 34-32 vote on Monday. Seven DFLers joined all but one GOP legislator in voting against the bill, which would raise $1.9 billion in additional revenue.

But after a brief caucus meeting, DFLers returned to the floor and passed the bill on a 35-31 vote. Freshman Sens. John Hoffman, DFL-Champlin, and Greg Clausen, DFL-Apple Valley, flipped their positions on the second vote. Sen. Ann Rest, DFL-New Hope, chair of the Tax Reform Division, didn’t cast a vote initially, but supported the bill on reconsideration.

Republicans seized on the floor mishap as evidence of the palpable queasiness of DFLers, particularly those in swing districts, in supporting a bill that includes substantial tax hikes. “Obviously the first vote was where the DFL members voted their conscience, they voted their district, they voted the merits of the bill, and it failed,” said Senate Minority Leader David Hann. “Then they went in the backroom and the DFL party bosses cracked the whip, changed a few votes, and they came out and took the vote the party wanted them to take, and they passed their bill.”

But Senate Majority Leader Tom Bakk suggested that the defeat was a routine occurrence on what’s typically the most difficult vote of a legislative session.  “The spending bills are relatively easy to vote for because they invest in things that are very popular with Minnesotans,” Bakk noted. “It’s always harder to actually pass the bill that provides the revenue to pay for it.”

Bakk further insisted that the caucus did not count votes prior to the initial floor vote and that there were more than two DFL senators willing to flip their positions after the measure was defeated. “We didn’t twist arms,” he said. “We didn’t make any kind of concessions to anybody.”

The Senate bill would raise the state’s top income tax bracket from 7.9 to 9.4 percent. That third-tier rate would apply to individuals who make more than $80,000 and joint filers with taxable incomes over $140,000 — or roughly 7 percent of state residents. The change would raise $1.1 billion in additional revenue for the next biennium.

The Senate bill also overhauls the state’s sales tax, lowering the rate from 6.875 percent to 6 percent, but broadening it significantly. The sales tax would apply to an array of new products and services, including clothing and car repairs, and bring in nearly $90 million in additional revenue in the next biennium.

The other significant source of revenue in the Senate bill is from tobacco taxes. It raises the cigarette tax by 94 cents per pack, bringing in roughly $360 million in the next two-year budget cycle.

“It’s not always easy raising revenue,” said Sen. Rod Skoe, DFL-Clearbrook, chair of the Taxes Committee, during the floor debate. “The tax committee does hard work. But what we’ve done is provide Minnesota with a structurally balanced budget going forward for four years, and I for one campaigned on that.”

But Republicans, who did most of the speaking during the floor debate, pilloried the DFL majority for purportedly failing to stick to their campaign pledge of only raising taxes on the wealthy. “There’s just about every conceivable tax, and I question why,” said Sen. Julianne Ortman, R-Chanhassen, the ranking Republican on the Taxes Committee. “We can balance our budget without raising one dollar in new taxes.”

The Senate bill also includes funding for the Mayo Clinic’s proposed “destination medical center” in Rochester. The state would kick in as much as $400 million for transit and other infrastructure projects over the next two decades. That money, however, could not begin to flow until at least $250 million in private investment has been spent on what’s expected to be a $5.5 billion project.

The inclusion of the Mayo project in the tax bill spurred Sen. Dave Senjem, R-Rochester, to cast the lone GOP vote in favor of the legislation. Senjem referred to the Mayo project as a “rose in a bed of rocks.”

The House passed its omnibus tax bill last week, with four DFLers casting dissenting votes. That bill includes $2.6 billion in new taxes for the next biennium. It hikes income taxes on couples who make $400,000 or more and imposes a temporary 4 percent surcharge on incomes above $500,000. The House also takes in $790 million from increased taxes on tobacco and alcohol.

The uncertainty on the floor for Senate DFLers was exacerbated by GOP shenanigans. A trio of Republican Senators – Paul Gazelka of Nisswa, Dan Hall of Burnsville, and Dave Thompson of Lakeville – were on the board as yes votes, only to switch over in the final second or two after Senate President Sandy Pappas instructed that the roll be closed.

That led the board to flip from passage to failure. Later, Pappas acknowledged that it was a mistake to close the roll even though Rest, a key player in the floor maneuvers,  had not voted.

The Senate and House tax bills will now need to be reconciled in what’s expected to be a lengthy and contentious conference committee. Bakk insisted that the difficulty in corralling votes for his body’s bill shouldn’t suggest weakness heading into that negotiating process. In fact, he characterized the difficulties on the Senate floor as laying down a marker for the tax talks to come.

“This bill raises $1.8 billion in this biennium; the House bill raises $2.6 billion,” Bakk noted. “I think what it tells you is maybe $1.8 [billion] is probably the upper end of what the Senate’s willing to raise.”