Republican Rep. Greg Davids of Preston says Minnesota must respond this session to the massive federal tax code changes enacted late last year. Davids chairs the House tax committee and said waiting until next session to pass a federal conformity bill is not an option.
"That would be the disaster of all disasters," he said.
Davids said a delay would create unnecessary complications for taxpayers filling out returns next year and for the Minnesota Department of Revenue processing those returns. Many Minnesotans will see a tax increase if lawmakers do nothing.
Davids said the House bill would better align the state and federal tax codes and make for a simpler system.
"I get a lot of questions, 'are we to the postcard?' We are not to the postcard unless it's a really big one. But historic tax relief is contained within this bill, the first time, I believe, since 2000. We're actually cutting individual rates, which I think is a good thing," Davids said.
Under the House plan, 2.1 million Minnesotans would see a tax reduction. An estimated 140,000 would see an increase. The bill reduces the rate for the second-lowest income tax tier in stages from 7.05 percent to 6.75 percent.
It also increases the standard deduction from $13,000 to $14,000 and provides a deduction of up to $30,000 for property taxes. The state personal and dependent exemption would remain.
And the bill helps businesses, with a reduction in corporate franchise tax rate in stages from 9.8 percent to 9.1 percent.
DFL House Minority leader Melissa Hortman of Brooklyn Park said Congressional Republicans already provided big tax breaks for businesses and the wealthy, and Minnesota shouldn't do the same.
"We should repair that damage. We should be making taxes more fair for Minnesotans. Instead, Minnesota Republicans are choosing to give corporations even more money," she said.
Democrats argue that Gov. Mark Dayton's tax proposal, which targets low and middle-income families with tax credits, is a better approach. DFL Rep. Paul Marquart of Dilworth said the governor's plan provides relief to those who need it most.
"There's no doubt that after the federal tax bill, it was corporations 1 and working families and senior citizens nothing," Marquart said. "We've got to give a win on the Minnesota side to working families and senior citizens, and I don't think this bill does that."
Republicans have been highly critical of the governor's plan. They contend that his proposal to extend a tax on health care providers amounts to a big tax increase. Under current law the tax is set to end next year.
Even though Democrats complained about the Republican plan and made several unsuccessful attempts to amend it on the House floor, 13 Democrats ended up voting for it as it passed 90-38.
Republicans in the Senate have given few clues about what's in their tax plan. Majority Leader Paul Gazelka of Nisswa said last week that fewer than 2,000 Minnesotans would see a tax increase under the bill. Senate Tax Chair Roger Chamberlain of Lino Lakes said it will also include a tax cut trigger that would automatically lower income and corporate rates when there's a budget surplus.
Rep. Glenn Gruenhagen, R-Glencoe, defended the House bill and its corporate tax cut. Gruenhagen said businesses pass tax costs on to customers, which hurts low income people most.
"It's a little bit like robbing Peter to pay Paul," he said. "They're going to pay the additional money because the products are going to cost more."
Correction (May 1, 2018): The number of Democrats who voted for the tax plan was incorrect in an earlier version of this story.
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