ST. PAUL, Minn. (AP) — The Minnesota House of Representatives voted Monday to cut state income and property taxes on businesses while slashing aid to several large cities, fulfilling key Republican priorities and setting the table for a conflict with Democratic Gov. Mark Dayton.
The House approved a package of tax changes on a 73-59 vote that fell mostly along party lines. Republicans who sponsored House File 42, which would cut state spending by $550 million over two years, said it’s needed to help close the projected $5 billion state deficit while freeing more money in the private sector to encourage job growth.
House Democrats said the tax changes in the bill favor the wealthy and big corporations at the expense of property taxpayers and renters, seniors and the disabled. While not able to block the Republican bill, Democrats have a key ally in Dayton, whose administration estimated the bill would force more than $1 billion in local property tax increases and reduced property tax relief in the next three years.
The passage of the House tax bill was the first major volley in a week of planned votes on pieces of the GOP budget solution. But even as the floor debates were getting under way, Dayton warned that he would not sign individual budget bills until he and Republican legislative leaders reach an overall deal on state tax and spending levels for the two-year period that starts July 1.
“I will not favorably consider a single budget bill without knowing its relationship to a complete and balanced budget solution,” Dayton wrote to top lawmakers.
That’s the easier said than done part. As the debate over the tax bill showed, Republican and Democratic lawmakers envision widely different approaches to balancing the state budget. In contrast to the GOP approach, Dayton wants a mix of some spending reductions and an income tax hike on the state’s highest earners.
“We’ve got one side of the aisle that wants to grow government, and one side of the aisle that’s going to be the big kids in the room, and say, `No, we’re going to hold down our spending,”‘ said Rep. Steve Gottwalt, R-St. Cloud.
Under the bill, income tax rates in the lowest two tax brackets would be reduced, providing $221 million in tax relief over two years. Because those in the top tax bracket pay a portion of their taxes based on the lower two rates, they would benefit from the cuts, too.
Rep. Greg Davids, the Republican chairman of the House Taxes Committee, said low- and middle-income taxpayers would get the most relief proportionately in terms of their incomes. A Department of Revenue analysis showed a $12 yearly tax cut for a family earning less than $30,000 a year compared with $206 for those making more than $250,000 a year.
Such savings would easily be offset by property tax increases, Democrats said, with local governments under pressure to make up for cuts to state aid and other programs. It’s a pattern, Democrats said, that was established under former Gov. Tim Pawlenty and now championed by Republican legislative majorities.
“Tell me, tell me where former Gov. Pawlenty created jobs and I’ll sit down and shut up,” said Rep. Tom Rukavina, DFL-Virginia. “Cut for the rich, make the middle class pay and no proof there’s one job created for this entire state.”
Rep. Keith Downey, R-Edina, said a weak national economy is to blame for lack of new jobs under Pawlenty, and he pointed out that Minnesota’s unemployment rate still compares favorably to the national rate.
Republicans said nothing in the bill would force city and county officials to raise property taxes. “Trust your local governments. They do amazing things with what they receive,” said Davids, R-Preston.
Under the House plan, state aid payments to Minneapolis, St. Paul and Duluth would be reduced by $250 million in the next two years, and eliminated entirely by 2014. Republicans say they singled out those cities because they get the largest amounts of state aid under a formula accounting for tax capacity and needs, but Democrats point out those areas are traditionally Democratic strongholds.
But Rep. Kerry Gauthier, DFL-Duluth, said his city has taken drastic steps in recent years to keep up with declines in state government aid.
“You will be responsible for the 20 percent police reduction. You will be responsible for the 20 percent fire reduction,” Gauthier said. “Those potholes we all hate — when you break your axel, it’s because we won’t be able to afford anymore to fix it.”
The House GOP also reduces property tax refunds for renters. About half of the 38,000 recipients of the credit earn less than $20,000 a year, Democrats said. But Republicans accused Democrats of lacking the willpower to support any move to control state spending.
“What we’re embarking on here today is a whole week long of hearing from the Democrats how they absolutely cannot do anything but fully fund every program, starting with local government aid,” said Rep. Linda Runbeck, R-Circle Pines. “We’ll hear hysterics, we’ll hear awful it is to do anything but fully fund all these programs.”
A Senate tax bill, due for a vote later this week, does not include the income tax cuts and spreads local government aid cuts more widely among the state’s cities. The Senate bill, which would cut spending by $580 million, extends more property tax relief to businesses by phasing out the state property tax on businesses entirely over the next dozen years.
Earlier Monday, the Senate passed an agriculture finance bill with a few Democrats joining all Republicans in support. There was no such bipartisanship for or a jobs and economic development spending plan that cleared the chamber on a party-line vote.
The House was also debating a transportation funding measure later Monday night.
Transportation Commissioner Tom Sorel said the level of cuts could put federal transportation dollars at risk, while Metropolitan Council Chairwoman Susan Haigh predicted steep fare increases and deep service cuts to Twin Cities transit service.
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