Republicans call for $800 million in MN tax cuts

05/04/2006

But bill isn’t likely to be enacted this year

BY PATRICK SWEENEY
Pioneer Press

House Republicans on Wednesday called for about $800 million in state tax cuts, most of which would not go into effect until 2008.

The cuts include a $400 million reduction over two years in state income taxes, accomplished by lowering two of the three income-tax rates that kick in as Minnesotans’ incomes rise.

Many workers would begin seeing lower payroll deductions in 2008, and all Minnesotans who pay income taxes would face lower tax bills when they file their taxes in spring 2009.

Some pieces of the House package overlap with a tax bill already passed by the Senate, but the two bills differ dramatically. For example, the Senate bill would reduce tax breaks available to businesses with foreign operations to pay for tax cuts for individuals.

With only three weeks left in the legislative session, much of the House bill — especially the income-tax cut — is almost certain not be enacted this year.

House Taxes Committee Chairman Phil Krinkie and House Speaker Steve Sviggum said Wednesday that a growing economy makes the tax cuts reasonable and affordable. Krinkie, a congressional candidate who faces a key endorsing convention Saturday, denied that politics played a part in the tax plan or the timing of its announcement.

Krinkie predicted that, without tax cuts, revenue would pile up in state accounts and perhaps eventually be rebated to taxpayers.

“Let’s leave it in their pockets now, rather than trying to return it later,” he said.

House and Senate Democrats ridiculed the Republican tax-cut plan as an election-year ploy that relies on projected revenue the state may never collect. Senate Majority Leader Dean Johnson, DFL-Willmar, called the tax cuts a “political wish list.”

The House Republican bill counts on a $1.1 billion surplus predicted in February for the state’s next two-year budget period to pay for the tax cuts. But the surplus is predicated on an assumption that state officials will be able to avoid any inflationary increases in spending while reaping the benefit of inflation in revenues.

Taking inflation into account — as state officials routinely did until a 2002 law change — would wipe out most of the surplus.

Other tax cuts proposed by the House Republicans include:

• A $100 million reduction in school property taxes that lawmakers approved last summer.

• A $118 million increase in state aid to local governments to help cities restrain property-tax increases.

• About $75 million in new income-tax deductions for people who pay health insurance premiums.

• Increased deductions for people who make charitable donations but do not file itemized returns.

On Tuesday, the House approved another bill that would give homeowners $276 million in property-tax rebates this fall — contingent on the state Supreme Court upholding a cigarette fee enacted last summer.