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House GOP details $2B tax cut

Rep. Ann Lenczewski, DFL-Bloomington, seated, the Democratic lead on the tax committee, was unimpressed with the chair’s attempts at bipartisanship, and said the commercial property tax break must have been a “top priority” for the Republican caucus. (File photo: Bill Klotz)

Rep. Ann Lenczewski, DFL-Bloomington, seated, the Democratic lead on the tax committee, was unimpressed with the chair’s attempts at bipartisanship, and said the commercial property tax break must have been a “top priority” for the Republican caucus. (File photo: Bill Klotz)

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 bill, arrived at through months of bill introductions and public testimony, was given another round of input and debate on Monday, and the House Taxes Committee passed it in its entirety on Tuesday. House Speaker Kurt Daudt said the bill could be ready for a full floor vote as soon as the latter half of the same week, and was certain the bill would pass within “eight or nine days” of its introduction.

The largest reduction in the next budget, and the proposal that Republicans stressed on Monday, would be a new 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 and Duluth. Beginning in fiscal year 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.

That measure got extensive review during the House committee hearing, as a number of DFL lawmakers drew attention to a plan they pitched as unfair, and unnecessarily partisan. Rep. Erik Simonson, DFL-Duluth, said he had tried to discern a cause for the reduction but, failing that, guessed that the Republican majority was “playing to some base,” and said the cut could only be seen as a direct attack on areas that tend to vote strongly in favor of the DFL.

“I think down deep, you think this is a horrible provision and you’re going to fix it,” Simonson said, speaking directly to Davids.

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.

Another element in the House bill would set the state estate tax minimum at $5 million, matching it to the federal threshold. In committee, Rep. Carly Melin, DFL-Hibbing, questioned the need for that measure on Tuesday, estimating, with the help of House staff, that fewer than a thousand people would be affected.

Davids, for his part, reminded the committee that the measure’s original author was Rep. Ron Erhardt, DFL-Edina. Erhardt, formerly a Republican, represents a suburban district that ranks among the most successful in the state, with a median income above $46,000.

The bill author counted off other DFL-backed proposals that had made it into his final bill, in yet another acknowledgement that he would need DFL support to get a final bill signed into law. Davids pointed out that a tax break for nonprofits’ income, authored by Rep. Lyndon Carlson, DFL-Crystal, was preserved in the bill, as was an amendment offered by Rep. Linda Slocum, DFL-Richfield, to extend a tax increment financing (TIF) district’s duration in her city.

Said Davids: “Representative Slocum, we’ve got to get that through.”

Rep. Ann Lenczewski, DFL-Bloomington, the Democratic lead on the tax committee, was unimpressed with the chair’s attempts at bipartisanship, and said the commercial property tax break must have been a “top priority” for the Republican caucus. Lenczewski said that sort of tax relief would be “last on the list” for economic development, and repeated Thissen’s claim that the cut would mostly line the pockets of wealthy business owners.

During the press conference, Davids explained that he had designed his bill to be “scalable,” with pieces that could change in size, effective date and rate to fit a smaller level of tax cuts. Lenczewski questioned, on Tuesday, the reasoning behind the GOP target, observing that the bill’s tax-cut figure was roughly one-10th the equivalent number in the governor’s budget.

Davids made several references to his willingness to negotiate with both Dayton and the Senate majority, and highlighted his inclusion of a tax break for working parents as a “strong placeholder” for a signature proposal from the governor’s office.

Thissen, on Monday, 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.”

Davids continued to lobby for DFL floor votes on Tuesday afternoon, urging members to bring any issues important to their districts to his attention as soon as possible. The bill cleared the committee on a voice vote, leaving it unclear just how many committee Democrats the chair had already won over with his broad, inclusive tax-cut bill.

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