In both MN houses, DFLers plan property tax relief

03/17/2007

BY RACHEL E. STASSEN-BERGER and BILL SALISBURY
Pioneer Press


People at the top end of the income bracket would pay more in income taxes, while many homeowners would pay less in property taxes, under a budget proposed Friday by Minnesota House Democrats.

Under that plan, the state would spend more on education and start an effort to get health care coverage to all Minnesota children.

Couples earning more than $400,000 per year and individuals earning more than $226,000 would pay a new 9 percent income tax rate — up from a current top rate of 7.85 percent — under the plan. About 50,000 people would pay the increased rate, which would raise about $433 million every two years.

"Every dollar from the new income tax bracket will be used to lower property taxes," said House Majority Leader Tony Sertich, DFL-Chisholm.

Republicans were quick with a response.

"This is March madness, folks. This is craziness," said Rep. Steve Sviggum, R-Kenyon, speaking on behalf of the House Republicans.

Meanwhile, Senate Democrats launched a bill that would cut property taxes for the vast majority of Minnesota homeowners.

"That's what I came here to do this year," said the bill's sponsor, Senate Tax Committee Chairman Tom Bakk, DFL-Cook.

While homeowners would benefit from the Senate bill, businesses would see significant property tax increases.

House Democrats didn't necessarily come to the Capitol to increase taxes, but their leaders said raising more money from income and other taxes would provide enough cash in the budget to fulfill their basic legislative goals.

"I think it was done with a lot of care and thought, and there were definitely some hard moments about it," said House Speaker Margaret Anderson Kelliher, DFL-Minneapolis. She had deflected questions about tax increases earlier in the session.

Gov. Tim Pawlenty, who has long said he would veto any tax increases, had a response ready before the House members had even released their budget proposal: "It looks like a legislative Taxapalooza," Pawlenty said during his Friday radio show.

Over the next few weeks, House committees will work out the budget details.

The House budget would raise cash through the income tax increase and through more politically palatable sources — $244 million per year through restricting a tax break for companies that have overseas operations, and $81 million through a crackdown on people and businesses that don't pay the taxes they should.

The Senate DFL property tax relief bill would spend $375 million over the next two years to hold down local taxes. Without that relief, property taxes are projected to increase 8.8 percent next year.

Not only would the Senate bill prevent those tax hikes, it also would provide property tax cuts ranging from 3 percent on a $400,000 home to nearly 10 percent on a $100,000 home, according to Senate staff estimates. A home valued at $200,000 — close to the state average — would see a $99, or 5 percent, tax reduction.

Bakk's bill, approved by the Senate property tax subcommittee, would provide an additional $225 million in state aid to cities, counties and townships, with the expectation that they would use most of that money to replace property taxes, rather than spending more.

But there's "no guarantee that will translate into real property tax relief for homeowners," warned Sen. Julianne Ortman, R-Chanhassen.

Bakk said he made it clear to city officials that he expects them to avoid increasing property taxes. About two-thirds of state aid to local governments typically goes to tax relief, he said.

Another $75 million in the bill would buy down school district property tax levies. "We're getting a two-fer" — more money for schools, and lower property taxes — said Sen. Rod Skoe, DFL-Clearbrook, chairman of the property tax subcommittee.

For low- and moderate-income homeowners with unusually high tax bills, the measure provides an additional $24 million for property tax refunds. For a typical family of four with a $200,000 home and a $50,000 income, the refund would increase $45 to $581 next year. Last year, about one-fourth of the state's 1.4 million homeowners received refunds.

Bakk's bill doesn't provide a way to pay for the property tax relief. He said the full tax committee would figure that out next week.

His bill would, however, increase a state property tax on businesses by $230 million over two years to ease homeowner tax burdens. Bakk said he intends to offset that tax increase in part by granting businesses a sales tax exemption on purchases of capital equipment.

He said he also believes the state could collect an additional $325 million by closing a tax loophole for companies that have "foreign operating corporations" and by auditing more tax cheaters.

He neither endorsed nor ruled out the House DFL's tax-the-rich plan.

Ortman and Senate Minority Leader Dave Senjem, of Rochester — the only Republicans on the subcommittee — abstained from voting on the DFL bill. While he favors property tax relief, Senjem said he suspects the DFL will try to increase income taxes — which he opposes — to pay for that relief.