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Tax bill agreement reached by conference committee

The taxes conference committee meets Wednesday, May 9. House Photography file photo
The taxes conference committee meets Wednesday, May 9. House Photography file photo

An agreement on one the most high-profile goals of the 2018 session has been reached.

We'll see what Gov. Mark Dayton thinks.

House and Senate tax conferees reached a deal Friday afternoon on a plan that they say would cut taxes for 2.2 million Minnesota, the first rate reduction in nearly 20 years. It contains a number of things the governor likes, but also things he does not.

Conferees are expected to get back together Monday or Tuesday after Department of Revenue officials have time to review the proposal.

"This proposal would be a victory for middle class families including what would be the first income tax rate cut in nearly two decades, and represents a serious effort on the part of the legislature to reach agreement with the governor," Rep. Greg Davids (R-Preston) said in a statement. He co-chairs the conference committee with Sen. Roger Chamberlain (R-Lino Lakes). "This issue is too important to wait until next year — we are committed to working with the governor in the final days of session so Minnesotans can avoid hassles, headaches, and tax increases next year."

The 2017 federal tax law, enacted last December, changed the federal tax code substantially. Without the state responding to those federal changes, Minnesotans will be faced with a more complex filing system.

Revenue Department report indicates with conformity and no other policy changes an additional $460 million in new state taxes could be collected from Minnesotans in the current biennium and more $1 billion in the 2020-21 biennium.

State statutes are presently conformed to the definition of federal taxable income as it was constructed on Dec. 16, 2016. Any amendments to the federal tax code since that time, such as the 2017 law, are not incorporated into Minnesota’s current calculations.

The agreement calls for first-tier tax rate to drop from 5.35 percent to 5.3 percent in tax years 2018 and 2019 and 5.25 percent beginning in tax year 2020. The second-tier tax rate would drop from the current 7.05 percent to 6.95 percent in tax years 2018 and 2019 and 6.85 percent beginning in tax year 2020. (See the state tax rates)

The changes would result in a $137.1 million revenue decrease this biennium and $341.1 million in the next.

“The Republican tax plan rewards 82 percent of working families with a middle-class tax cut, protects 99.8 percent of Minnesotans from a tax increase, and prioritizes economic growth. It will allow Minnesotans to keep more of their hard-earned money, and provide a good starting point toward larger reforms in the future,” Chamberlain said in the statement.

A corporate tax reduction is called for in tax years 2018 and 2019 from 9.8 percent to 9.65 percent. It would drop to 9.1 percent in tax year 2020, changes resulting in $22.9 million in reduced revenue this biennium and $122.7 million in the tails.

MORE View the spreadsheet

“We appreciate the Legislature is coming to a unified position on this tax bill,” Revenue Commissioner Cynthia Bauerly. However, she noted the proposal is missing some of Dayton’s key priorities, including an expansion of the working family credit that would target low- and middle-income families, buffer credits and timber credits.

“The rate cuts certainly will help Minnesota families, but they will not help all Minnesota families,” she said. “A family of four who claims the standard deduction, $14,000, and has four personal dependent exemptions will, if they have income under $30,000, they will not see any tax benefit from these rate cuts. That’s one of the reasons why the governor has been proposing the working family credit to make sure those families … have access to financial stability as well.”

She also noted a better understanding will be needed in how the tax bill fits in with other Dayton priorities using General Fund dollars, including additional education funding, school safety, elder abuse and the opioid epidemic.

“Understanding where all of those things come together will be an important step in ensuring we can move forward with a tax bill,” Bauerly said.

Conferees were busy Friday morning adopting a wide range of similar provisions from all sections of the bill except those related to tax conformity. Most of the items adopted were sales tax exemptions and property tax provisions from the House bill that were absent from the Senate version.

All but one of the Department of Revenue’s eight articles containing technical changes were adopted. The only section omitted was the department’s article related to the partnership tax for business entities.

On Thursday, the committee adopted a number of no-cost items, including the only conformity-related provision so far, which would alter the base Minnesota tax code calculation from federal taxable income to adjusted gross income — a provision included in the House, Senate and governor’s tax proposals. The change would give Minnesota more control over its tax code and preserve the option to keep personal exemptions at the state level.

WATCH Thursday’s tax conference committee meeting

House Public Information Services Editor Mike Cook contributed to this story.

 


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