DFL: Tax relief for 90% of homeowners

03/27/2007

House DFLers would tie property taxes to homeowners' ability to pay, but the GOP's Sviggum calls latest plan "a trap."


By Patricia Lopez,
Star Tribune
Last update: March 26, 2007 – 9:41 PM


Nine out of 10 Minnesota homeowners would see relief from property taxes under a House DFL plan that links property tax reductions to the uncertain fate of a proposed income-tax increase on the rich.

The bill would create a new homestead credit that would give homeowners up to $2,500 off their income taxes if their property taxes amounted to more than 2 percent of their income.

House DFLers on Monday called their plan a bold attempt to lower property taxes and tie the tax more firmly to homeowners' ability to pay.

But Republicans called the plan "a trap" to force them to support what they call an unnecessary tax increase, and Gov. Tim Pawlenty's spokesman promised a veto.

The ability-to-pay issue is "the biggest complaint we have about the property tax," said Rep. Paul Marquart, DFL-Dilworth, chairman of the House's property-tax relief and local sales-tax division.

The bill would send $543 million of property tax relief to "every corner of the state," said House Taxes Chairwoman Ann Lenczewski, DFL-Bloomington, who said the proposal will be the core of the House's tax bill this session.

The bill would strike a balance, she said, between metro and outstate homeowners and between those DFLers who prefer increasing aid to local governments and Republicans who like individual property tax cuts.

"We've tried to do a blend here," she said. "Nearly everyone will benefit."

The exception would those at upper income levels. The credit zeroes out for incomes above $150,000.

Millionaires targeted

What's more, the program is funded by a tax increase targeted squarely at the state's millionaires. Lenczewski said that 81 percent of the income tax increase falls on those who make more than $1 million -- about 28,000 filers, in her estimation.

The plan would create a new top income tax rate of 9 percent on married couples with joint income above $400,000 and singles with income above $226,000. The average increase would be $6,258 on an average adjusted gross income of $876,000, according to House research.

Using such a tax increase to fund property tax relief for 90 percent of Minnesotans, she said, "is about restoring fairness to our system."

Property taxes are expected to rise about 5 percent on average next year in the Twin Cities metro area and about twice that much outstate, according to a recent report by House Research.

Veto likely

Unlike the Senate's plan, Lenczewski said, the House plan would not raise commercial or industrial property taxes. It also would increase the amount of aid the state sends to school districts and local governments. Overall, the bill would lower property tax bills an average of 3 percent in 2007 and 9 percent in 2008.

Under the proposed bill, homeowners would apply for the credit on their state income tax forms and receive it in a separate check.

The proposal is headed for serious opposition from Republicans -- chief among them Gov. Tim Pawlenty. Brian McClung, Pawlenty's spokesman, said, "We've all recognized there should be property-tax relief this season," but said that funding it through an income tax increase "is a nonstarter. The governor does not support giving Minnesota the third-highest income tax rate in the country."

Because both the tax increase and property tax relief proposal would be in the House's overall tax bill, a veto would take down both elements.

'Setting a trap'

Republicans on Monday called the DFL plan a high-stakes gambit designed to coerce them into signing on to tax increases.

"Democrats are setting a trap here," said Rep. Steve Sviggum, R-Kenyon, a former House speaker. "They're creating an artificial choice. You can have property tax relief without taxing people out of the state. They've chosen not to do that."

Sviggum predicted a veto, but Lenczewski said the governor might not be so quick to whip out his veto pen.

"I think the governor will have to think twice about vetoing property tax cuts for seniors, farmers and families to protect 28,000 filers," she said.