By Danielle Killey
House Democrat leaders say they need to raise taxes on the richest Minnesotans’ incomes, alcohol and cigarettes to fund top priorities.
The extra $2.5 billion in revenue they would gain from new or expanded taxes would go to pay back state money owed to school districts and fund key areas such as early childhood and higher education, job creation and property tax relief, legislative leaders said Monday.
“Those critical investments are not free,” House Speaker Paul Thissen, DFL-Minneapolis, said.
Lawmakers also have to fill a $627 million projected deficit for the next two years.
House Majority Leader Erin Murphy, DFL-St. Paul, said a mix of new revenue, reforms and some cuts will pay for Democrats’ spending priorities, which she said some Republicans share.
The House Democrats’ tax plan would create a fourth tier income tax rate of 8.49 percent for couples making more than $400,000 a year in taxable income, up from the current top rate of 7.85 percent.
The plan also would create a two-year surcharge on couples’ income more than $500,000. That surcharge would be 4 percent of any income above $500,000. Democrat leaders emphasized the extra charge would “blink off” after two years.
“Our plan will make historic investments in education and pay for them responsibly and fairly by asking big corporations and the wealthiest Minnesotans to pay their fair share,” Murphy said. “We’re using all the tools available to us to get Minnesota on better financial footing.”
Gov. Mark Dayton and the Senate also likely will include higher taxes on top earners, though the rates and incomes differ. Support for the surcharge, however, is not strong outside the House.
Thissen said the proposed alcohol tax increase, expected to bring in roughly $350 million over two years, would be on wholesale products but essentially would equate to about 7 cents per beer, 47 cents per bottle of wine and $1.58 on a bottle of liquor.
Smokers would see a $1.60 per pack cigarette tax increase, pushing the tax to $2.83 per pack and likely bringing the state more than $400 million. Gov. Mark Dayton’s plan ups the tax by 94 cents.
Republican Rep. Greg Davids of Preston, former tax committee chairman, said the alcohol and cigarette taxes are problematic because they disproportionately affect low-income taxpayers.
The House plan does include some cuts, such as to the Health and Human Services budget.
“I think Minnesotans expect a balanced approach,” Thissen said.
Republicans said the plan will hurt Minnesotans and businesses.
“This proposal would force massive job-killing tax increases on our business owners and devastating regressive tax hikes on the poorest of the poor,” Davids said.
The House plan does not include changes to the sales tax, though the Senate proposal likely will. Dayton originally proposed expanding the sales tax to include more goods and services, such as clothing, and lowering the overall rate. But that provision was erased when he revised his plan.
The net revenue of the House tax plan would be about $1.5 billion, Thissen said.
About 1 million Minnesotans would see property tax relief under the plan, which includes a reworked renters’ credit and a homeowner’s refund, Democrats said.
The bill also would eliminate corporate tax loopholes for profits held overseas and put funds toward projects at the Mall of America, 3M and Mayo’s proposed Destination Medical Center.
Thissen said he expects the tax bill will be before the full House next week.