Minnesota DFLers look to corporations for more school money, but tax breaks for most families

Democrats in the Minnesota House released a tax plan Monday that would give relief to most Minnesota families but raise money overall, especially on the foreign income of Minnesota corporations.

The $1.2 billion in new revenue, which faces stiff resistance in the Republican-led Senate, is intended to increase the amount of state aid to school districts by 3 percent next year and 2 percent the year after that.

"Our Minnesota-values budget restores tax fairness for Minnesota families while making significant investments in education," said House Speaker Melissa Hortman of Brooklyn Park.

Republicans who control the Minnesota Senate offered a budget outline recently that contains no tax or fee increases, citing a $1 billion budget surplus that they say makes new money unnecessary. Senate Republicans and their business allies have signaled that they will oppose the tax increases proposed by the Democrats on Monday.

State Sen. Roger Chamberlain, R-Lino Lakes, said the Democrats' plan — or any plan to raise taxes — is a nonstarter in the Senate.

"The House tax plan is disastrous and will lead to ruin for this state," said Chamberlain, who is chair of the Taxes Committee. "This state cannot endure that kind of taxation and spending and hope to succeed and grow," he added, citing other Democratic tax proposals on gas, car registrations and health care. He dismissed aspects of the Democrats' plan that cuts taxes, calling it "throwing crumbs" and "shaking down the citizens." He argued that tax increases on corporations would be passed on to Minnesotans in the form of lower wages or higher costs.

The Democrats' proposed tax hike comes on top of a proposed 20-cents-per-gallon gas tax increase and the continuation of a tax on health care providers that is set to expire at the end of this year. Democrats argue that the gas tax hike is needed to improve Minnesota's roads and bridges, and the provider tax is needed to subsidize health care coverage for low-income individuals.

Conservative groups immediately assailed the Democratic plan. "The tax increases proposed by the House DFL will hit every Minnesotan, young and old, at every income level," John Phelan, economist at Center of the American Experiment, said in a statement. "We'll pay more in gas taxes, tab fees, income taxes, capital gains taxes, death taxes, and sick taxes. Is there any tax they don't increase in their budget?"

The sharply contrasting tax agendas are the prelude to a difficult negotiation in the final weeks of the legislative session, which must end by May 20. That's the deadline for Gov. Tim Walz and the divided Legislature to craft a balanced budget that is expected to top $45 billion for the next two years.

The Democratic tax plan would significantly increase the amount of money a person can earn without being taxed by the state.

A family of four taking the standard deduction would be able to earn $32,900 before paying any Minnesota income tax, which would make it the nation's third-highest income without tax, according House Taxes Chairman Paul Marquart, D-Dilworth.

The standard deduction — used instead of deducting expenses such as mortgage interest or charitable giving — is expected to be used by 93 percent of Minnesota families, thus simplifying the tax system considerably, Marquart said.

Democrats say two-thirds of tax filers would receive some sort of tax cut. Their plan would also increase property tax rebates, while 200,000 seniors would receive a tax break on their Social Security benefits. Farmers would get property tax relief on school bonds, and businesses would be allowed to deduct $1 million in new or used equipment the same year they buy it.

In addition to increasing the tax on corporate foreign income, the House Democrats would introduce a 3 percent levy on all capital gains above $500,000, excluding agriculture.

Chamberlain said Senate Republicans will release their own tax proposal after the Easter/Passover break, and that their plan will reduce taxes for Minnesotans.

J. Patrick Coolican • 651-925-5042