Dayton spending plan aims for tax relief for many Minnesotans

Gov. Mark Dayton proposed tax relief for 2 million Minnesotans Friday, as part of a broader proposal to increase state spending on schools, infrastructure, opioid-addiction treatment and protections for vulnerable adults.

"Individual Minnesotans did not receive much, if any, benefit from the federal tax bill" signed by President Donald Trump at the end of last year, Dayton said. "This is a way of balancing it out."

Republicans quickly raised concerns about the DFL governor's proposal, pointing to areas where it would increase taxes for some. Dayton's plan would roll back some of the tax cuts legislators passed last year, including reductions in businesses' property taxes and tobacco tax breaks.

Dayton's plan also calls for reinstating an old fee of about $2 for driver's license applications and some other transactions to continue repairs to the problematic Minnesota Licensing and Registration System (MNLARS). In addition, he called for a new fee on assisted living facilities to help cover the cost of additional oversight of such facilities.

"Governor Dayton's plan is too complicated. It raises taxes. It doesn't take responsibility for the failed DMV system, but increases fees to pay for it. It doesn't take responsibility for elder abuse, but increases fees on nursing homes. It's the wrong direction for Minnesota," Senate Majority Leader Paul Gazelka, R-Nisswa, said in a statement.

Tax cuts were one of the policy disagreements at the heart of the bitter end to last year's legislative session, when Dayton vetoed the Legislature's budget during negotiations and lawmakers sued him.

The governor's spending and tax plan provides a starting point for the GOP-controlled Legislature, as lawmakers attempt to rework Minnesota's tax code in response to the federal tax overhaul. The state has to update its tax code because Minnesotans' state taxes are based on their federal taxable income. If the Legislature does not update Minnesota's tax code, the state would be using the old federal rules from before last year's federal changes, creating significant confusion for tax filers and businesses.

The state would pay for tax cuts by conforming with parts of the federal tax law, Revenue Department Commissioner Cynthia Bauerly said. In general, Dayton's approach is to increase taxes on corporations with overseas investments and reduce the amount of interest that large businesses can deduct, and give the savings to most income tax filers in the form of a credit that would be worth $60 per person and $240 for a family of four.

Dayton's proposal would also end the relationship with federal tax rules, following 44 other states whose tax systems do not rely on the federal tax code to determine what taxpayers owe. By divorcing state taxes from federal taxes, a Minnesotan could take the standard deduction at the federal level and still report itemized deductions for their Minnesota returns, Bauerly said.

Under Dayton's plan, more than three-quarters of the state's 2.9 million taxpayers would see a tax cut. Approximately 1.9 million families would see an average income tax cut of $117, and another 329,000 families would see an average cut of $160, Dayton said. He said he now wants to see Republicans' proposal.

Republicans will unveil theirs in the coming weeks, according to House Taxes Committee Chairman Greg Davids, R-Preston.

"Republicans will focus on holding Minnesotans harmless and preventing headaches for filers next year," Davids said in a statement. They do not plan to revisit proposals signed into law last year, such as the business property tax reduction, he said, adding: "It would be irresponsible to raise billions in taxes when we have a healthy budget surplus."

Along with the tax changes, Dayton laid out a long list of areas where he wants to spend the state's $329 million surplus. Education and schools are a top priority, including special education, prekindergarten programs and additional school security.

The budget includes nearly $16 million for school districts to bolster security, an initiative Republicans also support.

The proposal also invests significantly in clean-water infrastructure, opioid-addiction treatment and prevention, public-employee pensions and statewide broadband. It designates $10 million to reimburse deputy registrars around the state affected by the glitch-plagued MNLARS rollout.

"Governor Dayton's budget proposes over a billion dollars in harmful tax increases to finance hundreds of millions of dollars in government spending, and he's asking Minnesotans to pay more in DMV fees to clean up the MNLARS mess created by his administration. Republicans have no plans to ask Minnesotans to pay more taxes when we have a budget surplus," House Ways and Means Chairman Jim Knoblach, R-St. Cloud, said in a statement.

Knoblach said Republicans are pleased with some of Dayton's ideas, such as money for school safety and refunds for deputy registrars.

This budget proposal comes partway through the two-year budget cycle and also suggests spending for 2020 and 2021. State leaders ended last year with a projected budget deficit. But budget officials' latest projection in February showed a relatively modest surplus of $329 million.

That was lower than many lawmakers predicted, giving them less money to work with this session.

Minnesota Management and Budget Commissioner Myron Frans stressed the need for a balanced budget and said this proposal accomplishes that, leaving the state $124 million in the black.

"We must prepare Minnesota for any unexpected economic changes or federal policy changes and keep the state on sound financial footing," Frans said.

Staff writer J. Patrick Coolican contributed to this report.