ST. PAUL-Minnesota state leaders are preparing to negotiate one of the most complex tax law rewrites in decades.

With the Senate passing, by 34-32, its version of the tax legislation on Thursday, May 3, all three pieces are in place for the governor and legislative leaders to ensure that recent massive changes in federal tax law do not force hundreds of thousands of Minnesotans to pay more.

Without big state tax law changes, "Minnesotans would be subject to huge tax increases," Senate Tax Chairman Roger Chamberlain, R-Lino Lakes, said. On top of paying more money, residents also would face much more complex tax returns starting next year.

Democratic Gov. Mark Dayton and leaders of the Republican-controlled House and Senate agree they need to take action to keep Minnesota taxes in check. However, their approaches are different as they approach the midnight May 20 deadline to pass bills this year.

"While there are many items in the bill that are aligned with the governor's approach, there are significant differences that must be reconciled to get to a final bill," Revenue Commissioner Cynthia Bauerly wrote to Chamberlain Thursday.

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Three-way negotiations could start early next week.

Sen. Tony Lourey, D-Kerrick, said Dayton cannot accept the bill as written.

"I don't know if we get a tax bill or not," he said. "It seems this tax bill needs a lot of work."

Some key parts of the three tax plans:

  • The governor suggests a new tax credit for Minnesotans earning less than $140,000 a year. Money for the credit would come from higher taxes on businesses. The Revenue Department says about 2 million people would receive at least a $117 tax cut.
  • House Republicans want to cut the second-tier of income taxes from 7.05 percent to 6.75 percent, which would affect middle-class and richer Minnesotans. More than 2 million Minnesotans would get a tax cut, the GOP says. Also, the corporate tax rate would fall from 9.8 percent to 9.06 percent. About 148,000 people would pay higher taxes.
  • Senate Republicans say their bill would keep 99.8 percent of Minnesotans at the same or lower level of taxes by trimming the lowest income tax tier from 5.35 percent to 5.1 percent. Tax breaks could reach $150 per person. The legislation also would provide for automatic tax cuts when budget surpluses more than $127 million are predicted.

Dayton was highly critical of the automatic tax cuts.

"You can see the path as clear as the iceberg before the Titanic," Dayton said. "But we will sound the alarm more than 30 seconds before impact."

Sen. Richard Cohen, D-St. Paul, unsuccessfully tried to remove the automatic provision. He said it would be "very destructive to the budget" by cutting too deep into budget reserves.

Chamberlain told Cohen he is "wrong" about that, and lawmakers need to stop their overspending.

Stadium fund for vets?

Gov. Mark Dayton and a Republican House committee chairwoman do not agree on funding three new veterans' homes.

Rep. Sarah Anderson, R-Plymouth, argues in favor of her state government committee bill that would take $26 million of "excess" money from a fund repaying U.S. Bank Stadium loans. The money would go to match federal money to build veterans' homes in Bemidji, Montevideo and Preston.

"These dollars are the excess of the excess funding," Anderson said.

Dayton opposes taking money out of that fund.

Dayton wants more bonding

The governor is not impressed by House Republicans' proposed $825 million public works plan.

"Where's the other half?" Dayton wondered when reporters asked his opinion about the House plan released late Wednesday afternoon.

Dayton said he has not had time to completely examine the plan.

His own proposal calls for selling $1.5 billion in bonds to finance construction projects, and he wants $858 million of local projects also funded. That adds up to $2.3 billion, after more than $4 billion in requests have been made for public works projects.

Better foster care

Legislation designed to improve foster child care passed the House unanimously.

Licensed foster care providers would be required to take an hour of fetal alcohol syndrome training under the bill by Rep. Ron Kresha, R-Little Falls.

"Fetal alcohol syndrome poses serious dangers to children," Kresha said. "It is crucial for foster families to understand the impact it can have on children, and better educating them will ensure the best care for the kids who suffer from it."

The bill now heads to the Senate.