$900 million income tax increase is in the mix

03/29/2007

Senate DFLers are considering two possibilities of increasing income taxes primarily for education spending.


By Patricia Lopez,
Star Tribune
Last update: March 28, 2007


Senate DFLers are working on a nearly $1 billion income tax increase proposal that could wind up boosting most Minnesotans' income taxes to pay primarily for education spending.

Senate Taxes Chairman Tom Bakk, DFL-Cook, said Wednesday that the caucus was "about evenly split" between two income tax plans and was supposed to make a choice today, with a final vote by the full Senate due as early as Saturday as part of an education funding bill.

One of the proposals being considered would raise income tax rates across the board to 1999 levels, essentially wiping out the 2000 reductions, and would create a fourth tier for the wealthiest Minnesotans. The second plan would simply add a fourth tax rate that could go as high as 10 percent, Bakk said. That would give Minnesota the highest income tax rate in the nation.

The state's existing top rate is 7.85 percent. Only three states have top tax rates of 9 percent or more.

Bakk said he does not support that option and prefers the across-the-board increase, saying that all Minnesotans should contribute to higher spending on education.

Money raised would allow the Senate to nearly double its K-12 spending, with funding not only for special education, but also for general classroom formula increases to districts across the state. Bakk said there also would be funding for early learning and tuition relief for higher education.

2000 tax cuts 'unsustainable'

"We need to be honest about the fact that the (2000) tax cuts were unsustainable," Bakk said.

He said that final figures weren't in, but that the Senate proposal probably would tip the scales at about $900 million or more. The alternative, he said, would be bare-bones education increases and paltry property tax relief.

"There is no money for what we need to do" without a general tax increase, he said.

Even without details, Republicans complained of sticker shock on Tuesday. "I'm not hard-core against tax increases," said Sen. Geoff Michel, R-Edina. "I've tried to look at transportation and a gas tax increase in a separate box. But it seems like there's no balance here. I'm amazed at the appetite for spending."

Michel predicted that the prospect of multiple tax increases "will unite Republicans with the governor like nothing else could."

An omnibus tax bill presented Wednesday also would increase the statewide business property tax, although it also would lower some business taxes and contains $376 million of property tax relief for homeowners. That bill could come up for a floor vote by Friday.

Bakk acknowledged that even Senate DFLers are divided, but mostly over which type of income tax increase to support. He said that Senate Majority Leader Larry Pogemiller, of Minneapolis, was among those who preferred a fourth-tier tax rate that taps only the highest-income Minnesotans. That is similar to what House DFL leaders have proposed, although their top rate would be 9 percent and would raise about half of what the Senate plans would generate.

Pogemiller deferred comment on the bill to Bakk, as tax chairman, but has said earlier that a tax incidence study recently released by the state Revenue Department bolsters the argument for a fourth tier tax rate. That study showed that earners at the highest income levels pay a smaller proportion in overall state taxes than middle-class Minnesotans.

'Not that scary'

Bakk said Minnesotans would find that an across-the-board tax increase was "not that scary," once the numbers came out. A family making $50,000 a year, he said, "would probably be looking at a $30 or $40 increase a year. They'd get that back many times over in property tax relief and better schools."

The 2000 income tax cuts produced fairly modest relief for middle-income taxpayers, with taxes dropping about $50 a year for those making $50,000. At $500,000, income taxes dropped by nearly $1,400.

But Brian McClung, Gov. Tim Pawlenty's spokesman, said that's not the only consideration. The proposed increases, he said, are piling up in every direction: gasoline tax, sales tax, income tax.

"This state is not going to have the highest tax rate in the country," McClung said. "It's not going to have an across-the-board tax increase. If there's anything that's been clear, it's that the governor does not support massive tax hikes when we have a surplus."

DFLers, McClung said, have "added a dessert wing to the all-you-can-eat buffet. It's not happening. The governor will veto it."