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Apr 20, 2009 6:45 pm US/Central
Minn. Dems Aim To Tax Wealthy, Smokers, Drinkers
ST. PAUL (AP) ―
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The proposal gets its first hearing in the House Taxes Committee Monday.
CBS
Tax on a pack of cigarettes would go up 54 cents. A glass of beer would cost three pennies more; a shot of liquor, an extra nickel. The best-paid Minnesotans would find themselves in a new, higher income tax bracket.
House Democrats revealed their blueprint for raising $1.5 billion in new taxes Monday, targeting the wealthy, vices and a smattering of everything else, from music downloads to used boats to the current mortgage interest deduction.
The taxes -- combined with spending cuts and a delay in school payments -- would help dig the state out of a $4.6 billion budget hole over the next two years. But the proposals face a big obstacle from Republican Gov. Tim Pawlenty, who has vowed to veto tax hikes.
A separate plan to raise $2.2 billion in new taxes is due Tuesday from Senate Democrats.
House Taxes Committee Chairwoman Ann Lenczewski characterized her bill as reform that would draw jobs by giving businesses several tax breaks and put the state tax code more in line with people's ability to pay. She said higher alcohol and cigarette taxes would help cover some of the public's costs for both habits.
"The choices are not good," said Lenczewski, DFL-Bloomington. "Cuts hurt people and tax increases hurt people. Nobody -- I don't think anyone's having any joy about the situation we're in. And taxes and cuts both hurt people, so this is a reasoned, balanced approach to try to do some of both."
The bulk of the money -- more than $900 million over two years -- would come from wiping out a host of income tax breaks and creating the new top income tax bracket. The new fourth tier income tax rate of 9 percent would kick in on income starting at $300,000 for married filers or $169,700 for single taxpayers, raising $467 million.
Current tax breaks and deductions for everything from mortgage interest to organ donor expenses and K-12 education expenses would be eliminated and replaced with credits tailored for those of modest means, for mortgage interest, donations to charity and child-rearing expenses. Lenczewski said the current breaks disproportionately go to those with the highest incomes.
Increasing Minnesota's cigarette taxes and fees to $1.77 a pack would match Wisconsin's smokes tax and bring in $187 million, with a tax on moist snuff adding nearly $17 million more. Pulling alcohol taxes up from 1987 levels would net $209 million.
Republicans said the tax increases would pinch all income levels, even eliminating a rebate enacted last year to help lower-income taxpayers with the state's climbing gas tax.
"They're going after Joe Six-pack with his beer and his ATV," said House Minority Leader Marty Seifert, R-Marshall. "They're going after the teenage kids with iTunes downloads. They're going after smokers, drinkers, butchers, bakers and candlestick makers. They're sparing no one from the tax increases."
Opposition from bar owners and liquor retailers is expected to ramp up. The Minnesota Licensed Beverage Association circulated figures showing the bill would increase alcohol taxes by a third. When a statewide tax increase for outdoors and arts programs begins in July, the tax on drinks during live performances in downtown Minneapolis could approach 19 percent, with downtown liquor, live entertainment and other taxes also levied.
The full House is expected to vote on the tax bill within days, setting up negotiations between House and Senate Democrats to come up with a common tax approach.
Other provisions of the House bill:
--Counties could raise their sales taxes in a plan designed to hold down property taxes and save the state money on local government aid.
--Businesses would get tax cuts and a bigger credit for research and development expenses, but the bill also goes after companies with foreign operations and foreign royalties. It would take away some of the tax breaks given to businesses in the Job Opportunity Building Zones program, a favorite of Pawlenty's.
(© 2009 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)
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