Minnesota House passes GOP tax bill; Dayton not yet on board

The Minnesota House quickly approved a tax measure Tuesday that cuts income tax rates, over the objections of DFL Gov. Mark Dayton.

By lowering rates for people in both of the state's two lowest income brackets, the GOP-crafted measure would give more than 2.2 million Minnesotans a tax cut — while also costing the state treasury about $137 million next year.

The measure passed 78-50 after less than 30 minutes of debate. The Senate, which will consider the bill on Wednesday, must act before midnight Sunday, leaving Dayton and GOP legislative leaders a shrinking window to strike an overall deal on taxes and spending.

"This is a great bill. It is a masterpiece," Taxes Committee Chair Rep. Greg Davids, R-Preston, said on the House floor. Before the vote, he told colleagues, "You'll never feel bad for doing the right thing."

Three DFL members voted for the bill: Rep. Mary Murphy of Hermantown, Rep. Gene Pelowski of Winona and Rep. Mike Sundin of Esko.

Dayton has insisted that he won't support the tax plan unless the Legislature considers his $138 million proposal for emergency aid to public schools. Republicans have raised concerns about Dayton's plan to distribute money to all schools, rather than just those with major budget shortfalls.

"They're just finding reasons to be against it," Dayton said earlier Tuesday of that critique. The Republican tax plan includes nearly $250 million in tax cuts or tax protections for corporations, he said, "And now they want to pick at every nit on my proposal and just find a way not to do it."

The income tax rate reductions are estimated to cost the state more than $142 million in 2020 and nearly $199 million in 2021. The bill also aligns the state with changes in the federal tax code that Congress approved in December.

Dayton has argued that the GOP plan prioritizes corporate tax breaks at the expense of middle-class families. He proposed his own tax plan that would have cut income taxes for most filers while raising them on many businesses.

Under the GOP plan, the lowest income tax bracket would drop from the current 5.35 percent to 5.3 percent this biennium and 5.25 percent beginning in fiscal 2019. The second income tax bracket would drop from the current 7.05 percent to 6.95 percent this biennium, and 6.85 percent beginning in 2019.

Three DFLers stood in the House chamber to outline their concerns about the bill.

Rep. Diane Loeffler, DFL-Minneapolis, noted that the tax cuts would cost roughly half the state's projected $329 million budget surplus.

"We ought to be able to do more for the people who really are the bread and butter of our communities," she said. Dayton's school aid also would come from surplus funds.

Rep. Paul Marquart, DFL-Dilworth, said that the bill "went in the wrong direction" after he voted earlier for the House version. "It spends more money, but yet provides less tax cuts for our working families and senior citizens," he said. Marquart is the top DFLer on the Taxes Committee and served on the conference committee that worked out differences between the House and Senate tax bills.

The GOP plan "makes it possible for corporations to pay no tax whatsoever — Minnesota corporations contributing nothing to the roads they drive on, the courts they rely on, the police and fire and first responders that they call on," said Rep. Jim Davnie, DFL-Minneapolis.

For families making more than the state's median income, he said, "this tax cut promises you $1.23 a week. As my dad would say, don't spend it all in one place."

Dayton's comments Tuesday came after he met over breakfast with House and Senate leaders. He's willing to compromise on taxes, he said, if they are willing to compromise on the school funding.

The governor held firm to his repeated vow not to call a special session to deal with that proposal. "One way or the other, it's going to be over next Monday," he said.

House Speaker Kurt Daudt, R-Crown, said after the meeting with Dayton that he believed the two sides aren't all that far apart. But Senate Majority Leader Paul Gazelka, R-Nisswa, said Monday that action on school aid before the Legislature adjourns would be "next to impossible."

Dayton said legislators are behind in finalizing their other budget bills, which he said are necessary to make a full evaluation of how to spend state money. "The ball is really in their court," he said.

Staff writer Jessie Van Berkel contributed to this report.