The Minnesota House overwhelmingly passed a tax bill Thursday that cuts $503 million in taxes for businesses and realigns state tax policy so that it more closely conforms with federal tax law.
The 126-2 vote came on the same day Gov. Mark Dayton proposed an even more robust tax cut plan in his supplemental budget. Both the governor and House leaders say the proposal needs to move quickly, but Senate leaders are indicating they want more time.
The vote comes a little over a week into the session and less than a year after Gov. Dayton and the DFL-controlled Legislature passed a budget that raised $2.1 billion in taxes. The most recent state budget forecast projects a $1.2 billion surplus in the current two-year budget cycle.
State Rep. Ann Lenczewski, DFL-Bloomington, said the bill should pass quickly to ensure that taxpayers waiting to file before April 15 will benefit.
"We need to do federal conformity right now because people are filing their taxes right now," Lenczewski said during the House floor debate. "And we need to repeal those business-to-business taxes that the surplus would allow us to do."
Federal tax conformity would ensure that most tax breaks enacted by Congress and President Obama also show up on state taxes. The changes passed by the House would provide tax breaks for married couples, low income working families and college graduates who pay student loans.
DFL House Speaker Paul Thissen said the House passed a federal tax conformity bill last year but the proposal ran into opposition from Gov. Dayton and Senate Democrats. Thissen said the state's projected surplus gives the idea another chance.
The House proposal also repeals business sales taxes on warehousing services, telecommunications purchases and equipment repairs.
Republicans praised DFL leaders for acting on the tax bill but criticized it as an election year change of heart. State Rep. Steve Drazkowski, R-Mazeppa, says he would like to see the Legislature pass a tax bill that cuts taxes by the full amount of the $1.2 billion surplus.
"[The] bill is a very good start but we have $700 million more of the people's money that is sitting here in St. Paul and we need to give it back," Drazkowski said.
Gov. Dayton praised House Democrats for passing the tax bill. A few hours before the debate, Dayton released his budget plan that includes $616 million in tax cuts. He wants to put the other half of the surplus in the budget reserve, but left the option of spending up to $162 million on new programs.
During a conference call with reporters, Dayton said he wants the tax bill on his desk by March 14.
"Minnesotans should know that if the Legislature doesn't act, it's going to cost them some of the tax savings that I'm proposing," Dayton said. "I think given the kind of stakes that middle income taxpayers have and business have in getting this bill passed expeditiously, there should be mounting public pressure to do so."
The pressure is now on the Minnesota Senate. Senate DFL Tax Chair Rod Skoe says he'll hold a hearing on tax conformity soon but emphasized that he's going to move judiciously. He also said the Senate won't cut taxes by as much as the House.
"With our emphasis on putting some resources into the reserves and fiscal stability, I'm expecting that we're going to come in a little less than the House," Skoe said.
Despite Skoe's call for restraint, the tax-cutting talk isn't expected to slow down in the House. DFL House leaders said they're interested in moving another tax bill that focuses on property taxes later this session.