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GOP plan phases out business property tax

Mike Mullen//April 21, 2015//

GOP plan phases out business property tax

Mike Mullen//April 21, 2015//

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Rep. Greg Davids, R-Preston, likes to name tax bills, both his own and those written by others. This year’s version, which sees Davids again holding the pen in the House, comes pre-christened “Don’t Stop Believin’,” after the Journey song by the same name.

Davids has uttered the phrase somewhat hopefully throughout the current session, suggesting that he could write a bill that would gain favor with Senate Democrats and Gov. Mark Dayton.

One of the less poetic lyrics from the 1981 mega-hit goes, “Some will win, some will lose.” According to Davids, his bill leaves many Minnesotans in the former category, and few in the latter; those who were “born to sing the blues” are probably members of the Minneapolis City Council.

House Republicans introduced the specifics behind their $2 billion tax cut in a Monday announcement, detailing a broad agenda that would slash income, business and sales taxes. The major income tax cut, a temporary revision, was placed front-and-center by the bill’s supporters; its critics zeroed-in on a business property tax cut that starts subtly, but grows exponentially in the near future.

The largest reduction in the next budget, and the proposal that Republicans stressed on Monday, would be a two-year, $1,000 state-level exemption for individuals. That provision comes at a cost of $538.6 million to state revenues, consuming about a quarter of the GOP’s tax-cut target.

The proposal also phases out income tax on social security benefits, at a cost of $236 million during the coming budget, and for veterans ($52 million); college students and graduates would also be eligible for a new credit on tuition loan debts. In total, Davids said, some three-quarters of the tax cuts in the first two years of the bill’s implementation are aimed at individuals.

Another hugely controversial provision in the omnibus bill would cap local government aid (LGA) for the state’s first-class cities of Minneapolis, St. Paul, Duluth and Rochester. Beginning in fiscal 2017, those cities would receive a combined $84 million annual cut in state aid. Rep. Steve Drazkowski, R-Mazeppa, who authored that piece of the bill, said even after the proposed cut, major cities would still receive “significantly more” LGA than other cities.

But the topic that might soon receive the most discussion and scrutiny, though, is a proposed elimination of the statewide property tax on commercial and industrial properties. Effective next year, taxes for affected businesses would exempt the first $500,000 in property value; ultimately, the bill would phase out the property tax excise altogether, with a 2022 sunset date written into the law.

The phase-out explains how that provision, at a cost of $453 million in 2016-17 revenue, would balloon to more than $1 billion out of the 2018-19 “tails” budget.

Davids said this, too, could be seen as helpful to individual Minnesotans — “there’s a lot of individual ownership [of business property],” he said — but predicted the bill would be spun as a “handout” to corporate special interests.

On this point, he got no disagreement, not even from House Minority Leader Paul Thissen, who quickly condemned the tax bill as largely business-friendly and derided the income tax reductions as “a [Greg] Davids deception.” Those cuts would offer middle-income Minnesotans $70 or $50 a year, and only in the first biennium, Thissen said, while major property owners like Wal-Mart and Home Depot would reap benefits from the property tax phase-out in years to come.

Thissen also warned that the bill’s long-term implications would “no doubt” lead to future deficits.

“There’s going to be more bad budgeting on the horizon,” Thissen said.

Davids did not rule out the possibility of a change of fortunes in subsequent budgets, but said he would prefer to spur economic activity by giving Minnesotans more spending money.

“We’ve been very careful on a lot of these issues to try to rein the tails in,” Davids said. “And we, of course, have to get that by our good chairman of the [House] Ways and Means Committee — and so far, so good.”

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