Budget tax provisions get first go-over

Gov. Mark Dayton’s proposed 2012-2013 biennial state budget contains more than $3.3 billion in tax increases, tax compliance and tax conformity changes.

The House Taxes Committee got a detailed look at the proposal Feb. 16 and 17, as it relates to state taxes and local aids and credits.

Matt Massman, Department of Revenue assistant commissioner for tax policy, said the governor shaped his tax recommendations around fairness and a recent tax incident study that shows the state’s highest earners are paying a smaller share of their income to support state and local services than households at lower incomes.

Dayton proposes a new fourth tier for upper income earners at a rate of 10.95 percent, which is expected to generate $1.89 billion in additional revenue for the General Fund in the next biennium. He is also asking for a temporary surtax on income over $500,000 and a tax on homes valued over

$1 million. Additionally, “snowbirds” who live elsewhere just long enough to avoid paying income tax would see that provision change.

The impact on these earners prompted the first round of questioning from committee members.

Rep. Linda Runbeck (R-Circle Pines) wanted to know if there is any analysis of the negative impact of a new tier, such as an outmigration of people from the state.

Massman said that Oregon and Hawaii are the only other states with a fourth tier and was not aware of any correlation with people leaving because of the rate.

Dayton’s proposal would not conform the state to the federal additional standard deduction for married filers, and Rep. Jenifer Loon (R-Eden Prairie) wanted to know why. “Won’t that be affecting all married taxpayers, regardless of their income?”

Massman called it a “$110 million ticket item,” and that taxpayers would be allowed the deduction on their federal taxes “where they would get the most benefit.”

Committee Chairman Greg Davids (R-Preston) said several meetings will be held on the budget proposal, with time for proponents and also for those with concerns to testify.

“I like Gov. Dayton, he is a good guy,” Davids said. “I have no question that he feels this is best for Minnesota. I, too, want what is best for Minnesota, and that’s the journey that we began yesterday. I’m all ears on how we should proceed.”

He expects bills to be introduced relating to the tax proposals and then heard in committee.