Democrats: Targeting tax shelters would add $1.2B in revenue

Published 4:54 pm Monday, April 8, 2019

ST. PAUL, Minn. — Democrats who control the Minnesota House said Monday that the state could generate as much as $1.2 billion largely by going after corporate tax havens overseas — new revenue that they proposed spending on education and tax cuts for most individuals.

The proposal sets up difficult negotiations with the GOP majority in the Senate, where leaders reiterated their adamant opposition to raising taxes and skepticism that the loophole-closing plan would succeed in extracting more money from companies that do business abroad.

Democratic leaders said most Minnesotans would benefit from simpler filing under the tax bill, which would bring the state’s tax code into conformity with the 2017 federal tax overhaul.

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“Without stronger state funding, class sizes will continue to increase, teachers will continue to be laid off, and our school districts will have no choice but to go to local property taxpayers just to fund the basics,” House Speaker Melissa Hortman said at a news conference.

Tax Committee Chairman Paul Marquart said the bill would match the federal standard deduction — $24,000 for a married couple — resulting in state income tax cuts for about two-thirds of Minnesotans and a 7% cut for a median income household.

Marquart said 93% of individual filers would choose to use the standard deduction, which would simplify filling for them. He said it also contains breaks that would benefit working families and extend the tax exemption on Social Security benefits to 56 percent of the state’s senior citizens.

As for tax increases, Marquart said the bill targets “dollars from overseas that Minnesota corporations have stashed in tax havens, and bringing them back to Minnesota.” He said these companies benefit from Minnesota’s well-trained job force and security, so they should pay their fair share of taxes on that money instead of sheltering it with “gimmicks and loopholes” that aren’t available to Minnesota businesses without foreign operations. The plan also includes a new 3% tax on capital gains over $500,000, exempting agriculture.

Senate Tax Committee Chairman Roger Chamberlain, a Republican, expressed doubt that the Democratic plan to pursue corporate money stashed abroad would reap the windfall that Democrats claim. He said it’s unconstitutional, will lead to lawsuits and drive businesses out of the state. But Marquart said he believes it’s on firm legal ground.

The bill also includes about $100 million in property tax cuts for homeowners, renters and farmers. It includes $73 million in new aid to cities and counties to help hold down property taxes. And it matches federal law by expanding deductions for new or used equipment for farmers and small businesses.

Democratic proposals for raising the state’s gas tax by 20 cents per gallon to pay for road and bridge improvements and preserving an expiring tax on health care providers that helps fund health care programs are contained in separate legislation. Republicans strongly oppose both ideas and didn’t like the new plan either.

“The House tax plan is disastrous and will lead to ruin for this state,” Chamberlain said. “This state cannot ensure that kind of taxation and spending, and hope to succeed and grow.”

Chamberlain told reporters he’ll roll out the Senate GOP tax plan shortly after the Easter break and that it’ll include tax relief without raising rates.

“It’ll make people’s lives easier and simpler for almost all Minnesotans across the board,” he said.

The Democratic tax bill would raise $900 million in new money for education from early learners to 12th graders. The new revenue would allow the state to increase its per-pupil funding by 3 percent in the 2020-21 coming school year and another 2 percent for 2021-22, said Rep. Jim Davnie, chairman of the school finance committee. The House education plan also includes boosts for early childhood learning programs; hiring more support staff such as school counselors, and improving recruitment and retention of teachers of color.