Millionaires in skyscrapers smoking cigars (Or, session wrap up)
Well, that was weird. We ended our state legislative session. Sort of. The legislature missed two deadlines. The Governor signed all the budget bills. And we’re still not done. The predictable stand-off was… uh, unpredictable.
The good news is: the Governor vetoed workplace preemption.
The bad news is: the GOP-led legislature snuck the budget for the state’s Department of Revenue into the tax bill—then they stuffed the bill with massive tax breaks for the wealthy and big business. And dared Governor Dayton to veto it.
But the Governor didn’t veto the tax bill. Instead, he line-item vetoed the funding for the legislature itself and invited lawmakers back to the table to fix the tax bill and bad policy jammed in two other bills.
The legislature lawyered up. And the next stand-off started.
But how did we get here? And why can’t we seem to pass a state budget, like, ever, on time, even when we have a budget surplus? If it seems like legislative special sessions have become routine, they have. Since 2001, we’ve had to use a special session during six of the last nine budget sessions to finish the work.
But it didn’t start with Governors Dayton or Pawlenty or Ventura or Carlson… We have to look back to the 1940s to find a decade free of budget-related special sessions. In each of the decades since, we’ve had to turn to extra innings several times each decade, usually when state government is divided by party or ideology.
But the ability to make it work during divided government is not shared equally by each party. For the record, the last time a GOP majority got done on time working with a DFL governor was 1965 .
It’s no secret that the Republican Party has been on a hard march to the right since Senator Barry Goldwater’s 1964 presidential campaign. Its multiple marriages of convenience between corporate elites, conservative Christians, segregationists, fiscal conservatives, the military establishment, and libertarians has had its ups and downs, no doubt. But years of in-fighting, purity tests, and RINO hunting has hammered its core consensus down. The single point everyone can agree on is tax cuts: the bigger, the better.
And seemingly no political headwinds, not the collapse of the State of Kansas, kicking 23 million people off of health care, or the nearly 2 to 1, disapproval to approval rating of President Trump can shake it. Cutting taxes is THE mandate.
In Minnesota, the most recent version of THE mandate has gotten subtly clearer with every round of budget negotiations. A quick comparison of the GOP’s tax plans tell the story.
In 2015, the state had a $1.9 billion surplus. The GOP House proposed $2 billion in tax cuts. There was a little something from everyone: long-term care tax credit (good), more corporate tax breaks (bad), deductions for joining a gym (unexpected). But four of them were special. Though it wasn’t clear at the time, they were becoming the chosen ones. They were becoming THE mandate: cuts to taxes on social security income, the statewide business property tax, the estate tax, and taxes on tobacco companies.
For your reference, here’s what you should know about the four chosen ones:
1. Social security income tax cuts. They sound good, but are remarkably top-heavy. First, only 32% of Social Security income in Minnesota is taxable. Of that, the Northstar Policy Institute estimates that about 75% of the benefit of the cut will go to the top 30% of Minnesotans, or those receiving Social Security payments and making over $73,485.
2. Statewide business property tax cuts. Think big box stores and skyscrapers. The proposal eliminated the indexing mechanism that makes the tax rise with inflation. Over half the cuts went to the top 5% most expensive property, or those worth over $2.5 million. This proposal cost nearly $900 million over four years.
3. The estate tax cuts on inherited wealth. Also known as the Paris Hilton Tax. It affects roughly the 1,000 richest estates in Minnesota and doesn’t affect farms or businesses worth less than $5 million.
4. Tobacco tax cuts…For big tobacco. This includes cigarettes, moist snuff, tobacco products, and (in later years) premium cigars.
These four, unrelated, some new, some old proposals were tucked away within 255 pages of tax policy. They were not yet ready for primetime. The tax bill was never sent to the Governor’s desk.
In 2016, in order to pass a bill the Governor might actually sign, the House compromised and worked with the DFL Senate to pass a fairer bill. Gone were the top-heavy social security income tax cuts and the estate tax, some of the corporate tax loopholes, the gym membership subtraction, the long-term care credit, etc. And they accepted a much larger Working Family Credit. But the statewide business property tax, and tobacco company cuts remained, diminished but substantial. And, along with the babies was a drafting error, a $101 million typo. Governor Dayton vetoed the whole bill, end of story.
By 2017, the GOP had gained a majority in the Senate and more seemed possible. It was time again to press for THE mandate. The big four were back: top-heavy income tax cuts, estate tax cuts, tobacco tax cuts, and statewide business property tax cuts. They were delivered to Governor Dayton in one big $1 billion tax cut proposal. It was vetoed hours later.
That gets us back to our recent special session. And the House File 1 tax bill.
The big four tax cuts remained, but this time with an added twist. The Minnesota constitution requires the legislature to balance the state’s budget every two years, but not after. In the Capitol, these years are called, ‘the tails.’ That is, the cost in the years after the next biennium, that is, 4, 6, 8, and 10 years later. The story of Minnesota’s tax bill is in the tails.
Initial tax cuts cost the state $451 million in 2018-19. But in the tails, that cost jumps to $631 million by 2020-21, an increase of nearly 40%.
And, finally, the four companions are ready for their close-up. Income tax cuts grow by $12 million. The Paris Hilton tax cut grows by almost $40 million. The tobacco companies come out over $25 million ahead. And the statewide business property tax explodes by $100 million.
Add it up: $177 million of the $179 million growth in tax cuts is dedicated to these four.
At the 11th hour, when the deal got cut, who got their stuff? Millionaires in skyscrapers smoking cigars. Literally. And precisely. And it was three of these four (all but the top-heavy income tax cuts) that the Governor is trying to renegotiate.
Between now and February 20, 2018, THE mandate will be tested again. Governor Mark Dayton’s line-time veto of the legislature’s budget will force Republicans legislators to ask themselves tough questions. Is THE mandate more important than their own paychecks? Or their staffers’? Or the legislature itself?
Let’s hope for all of us, that for enough GOP legislators, the answer to one of those questions is no.