Weeks of debate over Minnesota's tax code ramped up at the Legislature on Tuesday, as House Republicans began to flesh out the specifics of their plan that comes with some modest income tax rate cuts but would still hit some 180,000 taxpayers or more with some tax increases.
It's a byproduct of the federal tax breaks passed late last year — while many taxpayers nationwide will pay less in taxes, the tax overhaul has caused headaches for high-tax states like Minnesota. It's forced lawmakers to scramble to sync their state tax code with the federal government to avert a logistical nightmare come next year's tax filing season — and avoid some incidental increases on hundreds of thousands of residents.
With less than a month to go in session, Republican lawmakers were still short on specifics of how their plans would work. The Senate GOP was still finalizing its own proposal, while House Republicans couldn't say specifically who might pay less — or more — under their bill.
Despite their best efforts, House Tax Committee Chairman Greg Davids and House Research analysts confirmed some 180,000 taxpayers would likely see a larger tax bill next year.
"We're not going to be able to get everything put back the way it was because we are a high-tax state," Davids said.
It's a sign of the complexity of tax conformity. Without adjustments to its tax code, Minnesota would collect more than $400 million in additional taxes next year.
Gov. Mark Dayton has spent weeks touting his plan, which would redirect much of that revenue to middle-class families, giving them a tax credit of $117 or $160, on average. In its place, some businesses would be left with a higher tax bill.
Republicans in the House have criticized Dayton's proposal, saying it will increase taxes across all income levels.
Just who stands to benefit from House Republicans' tax plan was still unclear as they prepared to get it ready for a final vote in the coming weeks. It would eventually lower income taxes for the state's second tax bracket — for a single earner who makes $26,000 to $85,000 a year — from the current rate of 7.05 percent to 6.75 percent by 2020. It would also increase the standard deduction in Minnesota from $13,000 for a married couple to $14,000.
But for some earners, that could be offset by the loss of some lucrative tax deductions on work-related expenses, charitable deductions and property loss expenses from fires and some other natural disasters.
Republicans argue those potential tax increases pale in comparison to Dayton's proposal to extend a 2 percent tax on health care providers. The so-called provider tax funds MinnesotaCare and other care programs for low-income residents, but it's currently set to expire beginning in 2020.
GOP lawmakers have spent weeks bashing that as a "sick tax" that would be passed down to every Minnesotan who goes to a hospital or clinic. Dayton and his administration have argued it's not fair to portray that as a tax increase because Minnesotans are already paying it.
Minnesota Department of Revenue Commissioner Cynthia Bauerly said the House proposal would give businesses larger tax cuts over people.
"Unfortunately, this bill, like the federal tax law passed last year, provides more for businesses than for working Minnesota families when it comes to the rate reduction," she told lawmakers Tuesday.
Davids said he expects his bill will clear the Taxes Committee and could hit the House floor by early next week.