ST. PAUL-Sparring over how to best align Minnesota's tax code with recent federal changes began in earnest this week, quickly illustrating how far apart Republicans and Democrats are from finding common ground.
The specifics of Gov. Mark Dayton's proposal were revealed when legislation spanning more than 100 pages was introduced in the House and Senate. The state Department of Revenue also released an analysis of the proposal's impact on taxpayers.
Republicans used the revenue department's analysis to pounce, saying Dayton's plans amounted to across-the-board tax increases.
A big part of that is because the review included the governor's proposal to maintain a tax related to MinnesotaCare beyond its planned expiration at the end of 2019. Dayton also has proposed reinstating some taxes the Legislature eliminated last year and raising new revenue from business sources.
Rep. Greg Davids, R-Preston, who chairs the House tax committee, called the proposal "fundamentally unfair and wrong for Minnesota."
Cynthia Bauerly, revenue commissioner, disagreed, saying the governor's proposal would conform to federal changes in a way that would help 2 million working families.
"The governor's tax bill will improve families' budgets across the state of Minnesota without risking the stability of the state's budget," Bauerly said.
Why are tax changes needed?
The Tax Cut and Jobs Act approved by Congress and signed by President Trump in December cuts rates for individuals and businesses and eliminates or scales back many popular credits and exemptions to help pay for it.
If Minnesota doesn't change its code to line up with the federal changes in some way, 300,000 taxpayers will see a tax hike. If the state goes along with the federal changes, 870,000 would see an increase.
So the Republican-led House and Senate and a Democratic governor have until the legislative session ends in May to find an agreement on the best way to align Minnesota with the federal changes. Without an accord, taxpayers will face a messy tax season in 2019.
What is the Minnesotacare provider tax?
Officials from Dayton's administration and Democrats accused Republicans of misinterpreting the department of revenue analysis. They said the MinnesotaCare provider tax isn't supposed to sunset until the end of 2019, and keeping it shouldn't be considered a tax hike.
The revenue department analysis shows the tax is levied on certain health care providers and is expected to raise $692 million next year. About $634 million of that ends up being paid by state residents, the analysis concludes.
The money goes to operating MinnesotaCare, which provides health care to the state's low-income residents who cannot afford other insurance. The cost of the provider tax was included in the revenue department analysis at the request of legislative fiscal staff, a spokesman said.
Republicans refer to it as a "sick tax." They say it is ultimately paid by residents through higher costs or lower wages.
What comes next?
As Republicans were critiquing Dayton's tax plan, the governor was criticizing their lack of a proposal of their own.
"I'm still waiting for their bills," Dayton said earlier this week. "The time has passed to go play whack-a-mole with my legislative proposals. The time is already past due for them to come forward with their bills, and then we'll have a chance to compare their tax bills with mine."
It's unclear when the House and Senate will publicly release their tax proposals. The Senate tax committee is expected to review Dayton's plan Thursday, April 19.
State Sen. Roger Chamberlain, R-Lino Lakes, who chairs that committee, said Wednesday he was close to finalizing a plan.
"We've been working hard on this side for three or four months to come up with a plan that protects as many Minnesotans from tax increases as we can," Chamberlain said.
What about spending?
Although the debate on taxes so far hasn't included a proposal from Republicans, they are pulling together omnibus spending bills.
House Republicans committed to spending $107 million of the state's projected $329 million surplus on tax conformity. They want to spend another $100 million for transportation projects, $30 million for school safety and $50 million for things such as preventing elder abuse and combating the opioid crisis.
Dayton shares some of those priorities, but he has proposed other spending increases on things such as preschool.
Whatever spending plan lawmakers agree on, it will be just a fraction of the state's $46 billion budget passed last year.