Key Minnesota tax proposals to be finalized this week
ST. PAUL – Ten Minnesota lawmakers must decide exactly how to raise about $2 billion for the state, and they have plenty of work to do before the Legislature adjourns Monday.
The joint House and Senate tax committee has a self-imposed Friday deadline to determine key pieces of the tax plan such as a cigarette tax increase amount, property tax relief and the new income tax rate on top earners. Democrat leaders have outlined spending and tax plans, but the committee must finalize the details.
“Within the framework we have a lot of flexibility,” Senate Tax Chairman Rod Skoe, DFL-Clearbrook, said.
Leaders agreed income taxes would rise on the top 2 percent of earners, couples with $250,000 or more in taxable income. Skoe said that rate likely will be close to the governor’s proposal, which taxed a new fourth tier at 9.85 percent. The current highest income tax rate is 7.85 percent.
There also would be a temporary surcharge on those making more than $500,000. It would be used to repay schools for money the state has borrowed from them.
The amount of the surcharge would be determined after the current budget ends June 30, when the state will know if there are extra funds.
House Tax Chairwoman Ann Lenczewski, DFL-Bloomington, said any extra money would be used to pay back money the state owes schools before the surcharge starts. That means the surcharge might only last one tax year, she said, and is limited to two years.
The cigarette tax is set to increase, but the committee will choose how much. Members likely will pick an amount between 94 cents, the increase suggested by the Senate and governor, and $1.60 per pack that the House proposed. If it increases by $1.29, it would match Wisconsin’s $2.52 per pack tax, though some other border states have much lower tobacco taxes.
The House favors raising the alcohol tax over other revenue options, such as corporate tax increases, Lenczewski said. But Skoe said he does not want to pair that with a definite cigarette tax increase.
“I don’t envision raising the cigarette tax and alcohol tax in the same year,” he said.
Conference committee member Rep. Tom Anzelc, DFL-Balsam Township, also said he wants to keep any changes nominal.
“My goal is to minimize those taxes if I can’t get an outright elimination of them,” he said.
Property tax relief also is a priority, but the two bodies differ somewhat on how to do it. The House plan focuses on individual property tax relief to renters and homeowners, while the Senate’s plan is centered more on Local Government Aid, county and township funding increases.
Democratic leaders said they will erase the sales tax paid by cities and counties, which will cost the state about $100 million a year. They decided the sales tax only would be expanded to some services businesses provide to other businesses, not to other previously proposed items such as clothing.
Capital equipment expenditures for businesses also would be exempt from state sales taxes.
Lenczewski said both sides feel strongly about some of their different proposals, but they have to come to an agreement soon.
“Everyone’s just got to compromise,” she said. “The alternative is unacceptable.”
The Legislature must adjourn Monday.
The tax plan would raise funds to finance Democratic priorities.
“Our overarching goal is to provide more resources to public education … and to stop escalating property taxes,” Anzelc said.
Republicans have said taxes do not need to go up this year. They say when all Democrat-proposed taxes are added up they could total nearly $3 billion in the next two years.
Lenczewski and Skoe think the committee will work up to its midnight Friday deadline.
“Generally the negotiations fill the time allotted,” Skoe said.
Anzelc said there probably will not be too many disagreements in the end.
“I expect a very amicable and peaceful and collegial wrap-up,” he said. “We’ve been told that they want a straightforward, transparent final product, and that’s what we’re trying to do.”