Minnesota House approves tax bill that reduces rates

The Minnesota House has passed a tax bill compromise with the Senate that promises to reduce tax rates and bring the state code in closer alignment with recent federal changes. That compromise, which has yet to be voted on in the state Senate, still doesn't have the approval of DFL Gov. Mark Dayton.

The agreement that House and Senate negotiators finalized just prior to Tuesday's vote would reduce taxes for an estimated 2.2 million Minnesotans. It would reduce state income tax rates for the first time in 18 years.

Republican Rep. Greg Davids of Preston, chair of the House tax committee, spoke enthusiastically about the conference report, which he said would not raise taxes on the overwhelming majority of Minnesotans.

"I didn't believe we could get to that number, but we did. This is a great tax bill. It's so great I can hardly believe it," Davids said.

The plan, passed by the House on a vote of 78-50, reduces the rate for the first income tax bracket from 5.35 percent to 5.25 percent over two years. The second bracket rate would drop from 7.05 percent to 6.85 percent.

Many popular deductions, as well as the personal and dependent exemptions, would be preserved.

Rep. Paul Marquart, a Democrat from Dilworth, voted for the earlier House bill and took part in the conference committee negotiations.

"Unfortunately, this bill went in the wrong directions. It spends more money but yet provides less tax cuts for our working families and senior citizens," Marquart said.

She argued that low- and middle-income Minnesotans would do better under Dayton's tax plan, which delivers relief through targeted credits rather than rate reductions.

Earlier in the day, Minnesota Department of Revenue Commissioner Cynthia Bauerly offered a similar critique. She told the House and Senate tax chairs that more work is needed in the remaining days of the session. In addition to targeted tax credits, Bauerly said the governor still wants to undo tax cuts enacted last session for tobacco products, business property and estates.

"We hope that we will be able to return to negotiations and actually talk about moving some of the governor's priorities into this bill," Bauerly said.

Some provisions that the governor objected to have already been removed, including a Senate trigger for automatic individual and corporate rate reductions when there are budget surpluses.

Republican Sen. Roger Chamberlain of Lino Lakes, the chair of the Senate tax committee, said there have already been many compromises.

"It's not everything that we all want. It's certainly not everything that I think the state needs, that the people need," Chamberlain said.

Dayton's support for a tax bill hinges on more than the contents. He made clear this week that he won't sign any tax bill unless Republican legislative leaders provide $138 million in emergency funding to school districts that are struggling with budget problems.

Dayton told reporters that he repeated the ultimatum Tuesday during a private meeting with Republican leaders.

"I'm willing to compromise if they're willing to compromise on what's most important to me right now, which is the emergency school aid," Dayton said. "They didn't make any commitment to that, but I told them that's for you to decide and let me know when you've decided."

Republican leaders have so far said they have no plans to advance the governor's school aid request.

Davids, the House tax chair, said a federal conformity bill must be passed this session. If not, he warned of a nightmare scenario for the Department of Revenue during next year's tax-filing season, with added paperwork needed to bridge state laws that will be out of sync with the federal code.

"The governor needs to sign this bill. If we do not have conformity, it's on him," Davids said.

The governor will have an opportunity to sign or veto the bill once the Senate takes action, which could happen Wednesday.