MPR: House Releases $1.56 Billion Tax Cut Plan

House Releases $1.56 Billion Tax Cut Plan
By Michael Khoo, Minnesota Public Radio
April 30, 2001

House Republicans released a tax-cut plan heavy on property-tax reductions and an elimination of the health-care provider tax. Senate DFLers say the $1.6 billion plan will prohibit the state from meeting other spending needs. Gov. Jesse Ventura says Republicans may not have gone far enough with their reform, repeating his call for income-tax cuts and an extension of the sales tax.

HOUSE SPEAKER STEVE SVIGGUM SAYS

Some major provisions of the House GOP tax bill.

Sales Tax Rebate:

$856 million returned to taxpayers this summer

Property Taxes:

Eliminate the state-determined general education levy at the local, with the state picking up the costs

Reduce the rate on homes to a flat rate of 1 percent; Currently, homes worth $76,000 or more are taxed at a rate of 1.65 percent

Reduce the rate on commercial-industrial property to 1.5 percent on property worth less than $200,000; Currently, commercial property worth less than $150,000 falls in a 2.4 percent tax rate

Reduce the rate on commercial-industrial property from 3.4 percent to 2 percent for property valued at $200,000 or more

Gradually reduce the rate on apartment buildings with four or more units from 2.4 percent to 1 percent beginning in 2004; Two and three unit apartments and vacant land zoned residential would drop from 1.65 to 1 percent over the next three years

Reduce the rate on seasonal resort property from 1.65 percent to 1 percent

Reduce the rate on other seasonal recreational property to one percent; Currently, property worth up to $76,000 has a rate of 1.2 percent and property worth more than that is taxed at a rate of 1.65 percent

Slightly reduce the rate on low-income apartments over the next two years, then increase it back to the current level of 1 percent beginning in 2004

Income Taxes:

Create a 50 percent exemption for Minnesota capital gains held for more than five years, encouraging more capital investment in the state

Eliminate the so-called marriage penalty for low-income people who receive the working family credit

Create an income-tax exemption for military personnel stationed outside Minnesota
Source: Associated Press

after two years of across-the-board income tax cuts, GOP leaders were ready to shift their focus to other reductions. Sviggum singled out Taxes Committee Chair Ron Abrams of Minnetonka for leading the charge in the past, and in the present.

"We significantly reduced income-tax burdens across the board. That was our first go-round. Now we're looking here at a property tax cornerstone and sick tax cornerstone. We think that the Abrams' bill of last year, together with the bill of this year, gives a pretty nice one-two punch," Sviggum says.

Sviggum says the tax bill returns 100 percent of the state's $1.6 billion surplus projected for the next two years. In addition, the plan returns the entire current year surplus, expected to be nearly $900 million by mid-summer. The measure eliminates the health-care provider tax, that is charged to doctors, clinics, and hospitals.

But property-tax reform is the main course. The bill eliminates the state-mandated general levy for K-12 education costs - a move estimated to reduce property taxes by 18 percent for home and up to 33 percent for apartments.

Abrams says the package also eliminates the various tiers and classifications by which different residential properties are taxed at different levels.

"For the first time Minnesota will join 48 other states in having a 'house is a house.' There'll be no differentiation based upon tiers. There'll be no discrimination against cabin owners. And most importantly, there'll be no discrimination for renters. A house is a house is a house," Abrams says.

Senate DFLers say they're pleased the House is focused on property-tax reform, but they worry the size of the tax cut will prevent new spending in education, transportation, and health care. And Senate Majority Leader Roger Moe says the so-called "compression" of property-tax rates will shift tax burdens from more expensive properties to less expensive ones.

"The big winners are commercial and industrial properties and high-valued homes. The big losers are low-valued homes and farms. And I think basically what they've done is they have bought off the problem in the short run. But eventually, you have a system where you've shifted the property-tax burden on to low-valued homes and onto farms," Moe says.

Gov. Jesse Ventura issued a statement praising the House property-tax package, but he criticized House Republicans for taking a pass on income-tax cuts.

Revenue Commissioner Matt Smith says if GOP leaders were willing to accept the governor's plan to extend the sales tax to services, they'd have enough resources for additional reforms.

The House bill does a good job on property tax by and large. But there's a missed opportunity. And it's a missed opportunity in income taxes because of a missed opportunity in sales taxes. So, he's always seen these things as a package," Smith says.

Republican leaders may also face grumbling from within their own caucus. Rep. Phil Krinkie, R-Shoreview says a tax bill without income-tax cuts is like Thanksgiving dinner without turkey. Krinkie says the income tax has generated the recent budget surpluses.

"So if we want to eliminate budget surpluses - overtaxation, plain and simple - that's existed in this state for eight years, you need to reduce the level of income taxes," according to Krinkie.

But House leaders say they've focused on property taxes, in part, to align with Ventura for end-of-session negotiations with the Senate. The DFL plan contains less than half as much tax relief. DFLers say they'll release details later this week.

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