Mar 31, 2007 9:43 am US/Central
Tax Help For Some, Hike For Others
St. Paul (AP) ―
Minnesota senators voted Friday to ride to the rescue of property tax-pinched homeowners. They'll consider Saturday whether to help pay for it by putting the spurs to the state's top earners in unrivaled fashion.
The separate bills -- one addressing property taxes for homes and businesses and the other boosting the upper income tax rate -- are key elements of a Senate budget that still needs to be reconciled with House priorities. Republican Gov. Tim Pawlenty objects to the new taxes and insists he'd veto them.
The proposals break down like this:
--$375 million in the next two-year budget would be devoted to programs meant to curb property taxes. Senate Taxes Chairman Tom Bakk, DFL-Cook, said property taxes for homeowners would be lowered by an average of 5.8 percent when 2009 tax bills arrive.
--$1.5 billion in new taxes would be imposed on businesses and about 93,000 income tax filers in the same two-year period. Minnesota would establish a highest-in-the-nation top tax rate and subject more middle-class filers to the alternative minimum tax. The average income tax increase for those affected would be $4,340 in 2007, according to state researchers.
The bill containing the property tax buydown passed 38 to 28, with five Democrats joining all Republicans in opposition. The vote on the income tax increase could be tighter even though it raises money to cover additional spending on school classrooms, college tuition assistance and preschool programs.
"Those things have to be paid for," Bakk said. "It's easy to vote for the spending bills. The tax bill is a little harder."
Minnesota budget forecasters have estimated a surplus of $2.1 billion. But much of that gets eroded by inflation in existing programs and not all of the money is due to come in on a recurring basis.
The bill the Senate approved Friday would funnel more money to local governments in hopes of making them less dependent on the property tax and would bolster direct-to-taxpayer aid programs. In exchange, property taxes for businesses would rise and corporations with foreign operations would lose tax advantages. The business tab would rise $465 million in 2008-09.
The bill also keeps the Mall of America in play as its operators search for subsidies toward its expansion. Pawlenty's program offering businesses tax-free status for locating in depressed parts of greater Minnesota would be eliminated; an attempt to preserve it narrowly failed.
While confident Pawlenty will get in the way, Republicans argue the tax plans would make Minnesota an unwelcoming place for new businesses and entrepreneurs.
"We are poisoning ourselves," said Sen. Julianne Ortman, R-Chanhassen, ticking off the business tax, the new income tax proposal and last week's vote to add a dime to the gas tax. "They are the slow trickle of death for the Minnesota economy. It hurts our businesses. It hurts our economy. It hurts our state. It hurts our families."
The Senate's income tax proposal would add a fourth tier to Minnesota's current three-tier system. The new rate would be 9.7 percent
California, Vermont and Oregon are the only states with top rates at 9 percent or higher. California's 9.3 percent rate also has a 1 percent surcharge on income above $1 million with that money dedicated to mental health services. Minnesota's current top rate is 7.85 percent.
Bakk said his Democratic colleagues agreed to the plan during a closed-door caucus Friday morning. They chose the approach over another one that would have raised income taxes across the board.
Bakk said top-earning Minnesotans currently pay less than one-tenth of their personal income in taxes while middle-class earners pay about 12 percent in all varieties of taxes.
"This will flatten that line out some so the upper income people are going to pay a closer share of their income in taxes as the middle class is," he said.
The new rate would kick in on taxable income above $250,000 for joint filers and $141,250 for single filers. It would affect about 60,000 tax returns, meaning the number of people hit would be higher.
The Senate DFL plan affects far more people than a House DFL income-tax proposal, which carries a new top rate of 9 percent for about 28,000 households.
Both chambers' plans might be wasted effort because Pawlenty says he won't budge the tax issue.
"In a highly taxed state they think it's OK to crank up taxes, crank up spending," Pawlenty said on his weekly radio show. "You can't have a model that increases government at two or three times faster than the economy, faster than people's paychecks, and not expect that to come back and bite you."
Democrats would need to attract the support of Republican legislators in both chambers to overcome a veto because it takes a two-thirds vote. GOP leaders say they their members will stand strong, meaning an end-of-session scramble to re-prioritize fewer dollars for education appears likely.
(© 2007 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)
