Legislative Update – May 2, 2018

Legislature focuses on tax plan

The House and Senate tax bills are gaining momentum this week. Senate Republicans unveiled their tax plan on Tuesday, proposing a cut in state income taxes and a mechanism for automatic future cuts. Senate legislative leaders have said their tax bill would protect all but 2,500 Minnesotans from tax increases, following last year’s overhaul of the federal tax code.

Sen. Roger Chamberlain, R-Lino Lakes, chair of the Senate Tax committee, said the bill would protect 99.8 percent of state tax filers. He said an estimated 2.1 million would see tax cuts of up to $150, and 470,000 would see no change. “We need reform, we need tax relief for this state, we need economic growth,” Chamberlain said.

The Senate bill reduces the first income tax tier from 5.35 percent to 5.1 percent. Deductions for charitable donations, mortgage interest and property taxes would remain, as would the state standard deduction of $13,000. The state personal and dependent exemption would also be preserved. The bill also establishes triggers that would automatically reduce the income tax rate and corporate rate when there’s an adequate budget surplus.

The Senate proposal will be discussed in the Senate Tax committee this morning

The House passed their tax bill off the floor Monday by a vote of 90-38. While the House bill is similar to the Senate proposal, there are also key differences, including the House bill proposes to cut the rate for the second lowest income tax tier. Other provisions in the House bill would alter the base Minnesota tax code calculation from federal taxable income to adjusted gross income; put Minnesota in full conformity with federal Section 179 spending; allow businesses to deduct the cost of certain property as an expense, instead of requiring the property cost to be capitalized and depreciated; authorize $10 million in small business investment tax credits, or “angel credits;” repeal the political contribution fund program, which offers individuals a state-paid refund of their candidate contributions up to $50 a year; consolidate most residential property types into a single classification; create a sales and property tax exemption for medical facilities located in underserved areas; and provide a number of sales tax exemptions for various construction projects.

The Legislature has just under three weeks to work through the differences in the House and Senate tax bills and come to an agreement with Governor Dayton.

Governor proposes K-12 emergency funding

Governor Mark Dayton asked Minnesota lawmakers Tuesday to consider an increase in school funding this session to help with layoffs and program cuts. As school districts work on their budgets for next year, many have indicated the need to reduce teachers or staff, increase class sizes, close buildings and eliminate extracurricular activities.

Dayton is asking lawmakers for $138 million in one-time emergency aid to increase school resources by 2 percent in the coming year, which would amount to an additional $126 for every student in public school. Dayton said it would help schools get by until a new state budget is adopted next year.

House Education Committee Chair Jenifer Loon, R-Eden Prairie, said Dayton’s approach applies a broad-based solution to a narrower problem. “I think we need to look at this on a case-by-case basis,” Loon said. Loon said that if enrollment is declining in some districts, difficult adjustments need to be made. Education Commissioner Brenda Casselius said if schools have to make cuts now, it will be hard to recover later. “This one-time emergency funding is most definitely a need,” Casselius said.

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