Update: Tax routes outlined

Hann

By Danielle Killey

Minnesota lawmakers now have three distinct tax proposals to consider with release of a Senate Democratic plan that includes an income tax hike, sales tax changes and property tax relief.

Senate Democrats unveiled a proposal Tuesday that would increase income tax for married Minnesota couples who make about $141,000 or more taxable income. They also would lower the sales tax rate while expanding what is taxed to include clothing and other goods and some services.

The proposal does not create a new income tax bracket, like the governor’s and House’s proposals, but would increase the top tax rate from 7.85 percent to 9.4 percent. That would bring in $1.2 billion of the $1.8 billion new revenue the state would net under the total tax plan.

“When this bill becomes law, we will accomplish the goals of the session, to balance the budget over the next four years,” Tax Committee Chairman Rod Skoe, DFL-Clearbrook, said.

Minnesota has a projected $627 million deficit for the next two years and lawmakers want to boost education and other spending.

The third tier change would affect about 6 percent of Minnesota taxpayers directly, Skoe said.

The plan would reduce the state sales tax more than a percentage point and tax clothing and other goods and services. It is a scaled-down version of a sales tax proposal Democratic Gov. Mark Dayton made, then dropped in the face of strong legislative and public opposition.

“The philosophy was really to modernize the tax system,” Skoe said. “This matches the purchasing patterns of Minnesota.”

“It’s bringing stability to the sales tax system,” Sen. Ann Rest, DFL-New Hope, said.

Lower income earners would get a credit on their income taxes to help offset the clothing tax cost, Rest said.

Skoe proposes increasing the cigarette tax, also included in the House and governor’s plans. The Senate bill does not include an alcohol tax House members propose.

Skoe’s plan includes updates to the Local Government Aid formula and more state money for cities, counties and townships. It would eliminate state sales taxes cities and counties pay.

“We’re trying to attack property taxes at the source” with the changes, Skoe said. “I think there’s significant property tax relief in here.”

Republicans said the bill would hurt middle class Minnesotans.

“This is not a tax on the wealthy, it’s a tax on everybody,” Senate Minority Leader David Hann, R-Eden Prairie, said. “Before we raise another dime in taxes from Minnesotans, we should be going line-by-line through our state budget and cut wasteful government spending.”

House Majority Leader Erin Murphy, DFL-St. Paul, said there is not much support for the Senate tax bill among House Democrats.

“There is a lot of support for the proposal we put forth,” she added, which she said was drawn up after talking to Minnesotans.

The House bill would create a fourth tier rate of 8.49 percent for couples making more than $400,000 a year in taxable income and add a temporary surcharge on couples’ income more than $500,000.

The governor’s plan would tax couples making more than $250,000 at 9.85 percent.

Sen. Julianne Ortman, R-Chanhassen, said Democrats have sold their income tax increase as only affecting the wealthy, but the Senate proposal does more than that.

“To the extent that there was an effort to tax the rich, I think this is not it. This is a failure,” she said. “It’s a huge imposition on middle class taxpayers.”

Skoe said fellow Democrat senators had questions, but the plan generally was well received.

“It will pass,” Rest said.

 Reporter Don Davis contributed to this report.

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These are some highlights of the bill.

– Third tier income tax rate increase to 9.4 percent from 7.85 percent; affects married couples making $140,960 or more taxable income

– Lower sales tax rate to 5.675 percent from 6.785 percent while taking more

– Increase the current $1.23-cent cigarette tax by 94 cents per pack

– $80 million more in Local Government Aid, $40 million more in county aid and $5 million for township aid

– Greater Minnesota internship program tax credit established

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