Gov. Mark Dayton is touting a package of tax cuts he signed into law recently as evidence that his administration is out to help middle class Minnesotans.
Democrats say the cuts were possible because the state has a surplus. Republicans say Democrats are trying to make themselves look good during an election year.
“This session, the Governor signed into law $508 million in tax relief for middle class families and Minnesota businesses,” says a primer on Dayton’s tax cuts. “These new tax cuts benefit middle class Minnesotans, including seniors, farmers, teachers, working families, and small businesses.”
It’s true that Dayton signed a bill that lowered taxes by about $508 million, but he also raised taxes by $2.1 Billion in the previous session. And to say these cuts are all “new” is a stretch.
Last session, Dayton and the DFL-controlled Legislature raised taxes by $2.1 billion in part by increasing taxes for Minnesota’s wealthiest and by increasing taxes on cigarette sales. At the time, the state had a deficit of $627 million.
This year, he’s touting a roughly $508 million package of tax cuts that was made possible by a surplus.
UPDATE: Some have pointed out that Dayton is picking the higher of two numbers to describe the tax cut, and that's true. The immediate impact to the state's general fund is a revenue reduction of roughly $443 million. That doesn't include the delay of an additional capital equipment tax break that won't kick-in until 2015 that will cost the state about $64 million.
Here’s how that number breaks down:
About $230 million stems from provisions that are meant to match the federal tax code. Last year, Congress made tax breaks for things like adoptions and student loan interest permanent, but the Legislature didn’t pass legislation that squared Minnesota’s tax breaks with the federal tax code.
At the time, House Tax Chair Ann Lenczewski told MPR News that she met with resistance from Dayton and from Senate Democrats, who worried issuing the tax breaks would cost too much.
This session, the Legislature reversed course, and passed legislation that conformed to federal tax code.
By and large, the bill ensures that there’s no lapse in tax benefits people were already taking advantage of.
“If we hadn’t made these changes, people would have paid $57 million more in taxes,” explained Minnesota Department of Revenue Commissioner Myron Frans.
An exception is a rule that ensures that the standard deduction for married couples filing jointly is higher than single filers, which won’t kick-in until the 2014 tax year. The state hasn’t abided by the “marriage penalty” fix since 2010.
Another $232 million in tax relief comes from repealing three sales taxes the Legislature passed and Dayton signed just a year ago. Two of those sales taxes went into effect last year, while the third would have kicked-in in March.
A tax on large financial gifts that was signed into law last year was also eliminated.
That said, there are some features of the law that will provide additional tax benefits.
For instance, the law expands the working family credit by $30 million a year. It also lifts the estate tax threshold from $1 million to $2 million, and it includes an additional $3 million in angel investor tax credits for new businesses.
It’s true that the legislature passed and Dayton signed $508 million in tax relief this session, and that the bill will benefit a wide swath of Minnesotans.
However, to say that these tax cuts are new is a bit of a stretch. Nearly half come from making sure Minnesota’s tax rules match federal tax rules. And in part, there won’t be a lapse in those tax benefits.
Another large part of the bill comes from repealing sales taxes that were put into law only a year ago, one of which hadn’t even kicked in yet.
Finally, it’s important to note that Dayton and the DFL legislature raised taxes last year, too, to the tune of $2.1 billion. That means Minnesotans will still be paying more than they used to, though some will be paying less.
Dayton’s claim leans toward misleading.
Linden Zakula, spokesman, Gov. Mark Dayton
Nina Manzi, Legislative Analyst, Minnesota House of Representatives
Pat Dalton, Staff Coordinator - Reserach Department, Minnesota House of Representatives
Beth Kadoun, Director Tax and Fiscal Policy, Minnesota Chamber of Commerce