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Dayton wants to boost business taxes to pay for personal tax cuts

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Mark Dayton
In this May 11, 2017 file photo, Minnesota Gov. Mark Dayton speaks at a news conference in St. Paul, Minn. Dayton will play a key role in shaping the legislative session when it begins on Tuesday, Feb. 20, 2018.
Jim Mone | AP 2017

Updated 3 p.m. | Posted 12:11 p.m.

Gov. Mark Dayton set up a push-and-pull on Minnesota taxes Friday, laying out a proposal offering lower- and middle-income taxpayers a break but only if some businesses and tobacco sellers pay more.

The recommendations are part of a supplemental budget plan from Dayton, which will be heavily dissected by lawmakers in coming weeks. The Republicans in charge of the Legislature are certain to balk at a tax plan that reverses some breaks they adopted just last year.

It's all in the context of a $329 million projected surplus and a need to make some tax changes to adjust to the recent federal overhaul.

"I will warn you in advance: This is complicated," were Dayton's opening words at a news conference.

His administration said his proposal would provide an average tax cut of $117 for almost 2 million taxpayers, and $160 for 329,000 others. 

That would be accomplished through a new per-person tax credit of $60. The tax credit would begin to phase out when a single filer's taxable earnings hit $90,000 and go away entirely at $140,000, with joint filers seeing it erode at double those earnings.

The working family tax credit, geared toward lower-income people, would be provided more broadly.

In addition, Revenue Commissioner Cynthia Bauerly said Minnesota would separate its tax code from some federal adjustments so state taxpayers would still qualify for exemptions and deductions that will now be less attractive to claim on federal forms.

"The governor's proposal continues our commitment to sound fiscal management while also treating Minnesotans fairly," she said.

To make it happen, lawmakers would have to hit multinational corporations with a higher state tax bill. Many other businesses, however, could reap the benefits of new expense and bonus depreciation schedules.

Dayton said corporations scored big from the federal cuts so the changes he's proposing for Minnesota would be blunted for them.

Senate Taxes Committee Chair Roger Chamberlain, R-Lino Lakes, quickly objected to the overall package.

"Governor Dayton is misleading people, saying his budget will lower taxes," Chamberlain asserted in a statement. "The truth is, he's proposing a significant tax increase for many families, completely wiping out any savings they may have been entitled to after federal tax reform."

It will be the crux of the two months of debate in the Legislature, which must conclude by May 21.

Lawmakers could also differ with some of Dayton's spending proposals, which include:

• $30 million in additional grants for broadband buildouts in greater Minnesota.

• $27 million to shore up public employee pension programs

• $13 million for a state response to the opioid epidemic.

• $20 million for public colleges in an effort to hold down undergraduate tuition.

Another clash could come over Dayton's plan to repair the troubled Minnesota Licensing and Registration System, known as MNLARS.

The DFL governor's budget draws from several pots of money and relies on a $2 fee on licensing transactions. He said it's needed to fix computer programming problems and reimburse deputy registrars for extra costs they incurred during a botched rollout.

House Transportation Finance Committee Chair Paul Torkelson, R-Hanska, called Dayton's MNLARS fix dead-on-arrival at the House, adding, "we will not force Minnesotans to pay more to clean up the governor's (vehicle registration) mess." 

Senate Majority Leader Paul Gazelka, R-Nisswa, made it clear he disliked most of the proposals in Dayton's additional budget package. He echoed Torkelson's criticism about Dayton's MNLARS fix and criticized the governor's overall budget strategy. 

Republican and DFL priorities do overlap in some priority areas. All sides want to spend more to fix gaps in the policing mistreatment of elder patients and vulnerable adults in licensed care facilities. There is consensus that schools will get extra money to enhance security.

Dayton has said he won't sign bills that threaten the state's fiscal stability as he prepares to hand off the office to a successor. As such, his plan leaves $123 million of the surplus unspent.

Correction (March 16, 2018): Dayton's plan includes $20 million for public colleges. An earlier version of this story reported $10 million. It also indicated that Dayton had proposed $26 million more for pre-K and school readiness. That money is already in the current two-year budget.