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Tim Pugmire, MPR News 90.3 FM, Published December 10 2013

Democratic reaction mixed on Dayton proposal to use surplus to cut taxes

ST. PAUL – Gov. Mark Dayton’s proposal to use more than half of a project-ed $825 million budget surplus to cut taxes is receiving a mixed reception from his party’s tax leaders.

State Rep. Ann Lenczewski, DFL-Bloomington, chairwoman of the House Tax Commit-tee, has offered early and enthusiastic support. But her counterpart in the other chamber, state Sen. Rod Skoe of Clearbrook, is not yet convinced changes are needed, and that in-cludes Dayton’s plan to sync state tax policy with federal law.

Dayton said last week that if the latest economic forecast holds, he wants to use $231 million of the projected surplus to repeal the three business-to-business sales taxes passed last session. He also would use $205 million for a mid-dle class tax cut.

“That would include eliminating the marriage penalty, which would re-duce state taxes for some 640,000 Minnesota taxpay-ers,” the governor said. “It would also include increas-ing the working family credit, which would lower state taxes for about 53,000 taxpayers.”

House Democrats passed legislation last session to provide those same middle-class tax breaks by lining up state tax laws with several recent federal changes. But Senate Demo-crats didn’t do the same.

Lenczewski said she was happy the governor high-lighted the two most ex-pensive federal conformity changes. But she said several other changes are needed to cover deductions on things like mortgage insurance, student-loan interest and employer-paid adoption benefits. She said conforming to federal law makes things simpler.

“When you go in and file your taxes, you don’t have to finish your federal form and then go over to your Minnesota form and do them all over again, add back things and change everything,” she said.

But Skoe, chairman of the Senate Tax Committee, has a different idea for the projected surplus. He wants to replenish budget reserves to help the state weather any future down-turns.

Skoe said he plans to look at the governor’s proposal in the next session, which begins on Feb. 25. But he cautioned that tax cuts are not necessarily the best direction to go right now.

Republicans strongly support the repeal of new sales taxes on equipment repair, telecommunication purchases and warehous-ing services. State Rep. Greg Davids, R-Preston, said he wants to help the governor eliminate those businesses taxes, as well as the so-called marriage penalty.

But Davids said Dayton’s proposed increase of the working family credit could be a problem, though he said he’s open to debate.

“What will happen there is you can have cases where people haven’t even paid taxes, and they get refunds because they are lower income,” Davids said. “So, I have a philosophical problem with getting a tax refund when you didn’t pay any taxes in.”