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"T" word surfaces at Capitol
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Gov. Pawlenty says he hasn't decided whether to support legislation to raise the cigarette tax, but he's not ruling it out. (MPR Photo/Michael Khoo)
The debate over taxes at the state Capitol is heating up on several fronts. A key Republican lawmaker is proposing a $1 increase in the state's cigarette tax. Gov. Tim Pawlenty says he'll consider the idea, because the money would be used to offset another tax. And the Minnesota Council of Nonprofits is the first interest group to come forward with a specific proposal to raise taxes since Pawlenty released his budget.

St. Paul, Minn. — Gov. Pawlenty has been saying for months that he would veto a tax increase, and his budget proposal balances the budget without one. Lawmakers on both sides of the aisle have been skittish about uttering the "t" word. Now, a prominent House Republican wants to increase the cigarette tax by a dollar a pack, and use the money to eliminate another state tax. Fran Bradley of Rochester, who chairs the House Health and Human Services Finance Committee, told a House panel that his bill doesn't raise taxes overall.

"It is not a tax increase, it is a shift," Bradley insisted.

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Image Pushing for a tax increase

Bradley's bill would increase the cigarette tax from 48 cents a pack to a $1.48. That would generate about $260 million a year. Bradley wants to use the money to eliminate a state tax on doctors, hospitals and clinics, which funds the MinnesotaCare subsidized health insurance program.

"We are replacing one tax with another; this is not any kind of an increase in revenue to the general fund. It is a net zero," Bradley said.

Gov. Pawlenty says he hasn't decided whether he supports Bradley's bill, but he's not ruling it out.

"We're not going to raise taxes, but we will look at reforms where the net effect of the reforms is tax neutral," he said. Pawlenty says the bill doesn't violate his no-tax-increase pledge. The group that sponsored the pledge, the Taxpayers League of Minnesota, agrees. Bradley's bill cleared its first legislative hurdle in the House, but it faces an uphill battle in the Senate, where DFL leaders have opposed eliminating a dedicated funding source for MinnesotaCare.

Bradley's bill doesn't do anything to reduce the state's projected $4.2 billion deficit, but another tax proposal would. The Minnesota Council of Nonprofits is the first interest group to put a specific plan on the table. The group is calling for a 10 percent income tax surcharge that would generate $1.2 billion over two years.

The council's public policy director, Marcia Avner, says citizens have had time to absorb the impact of Gov. Pawlenty's budget proposal, and lawmakers are hearing from their constituents who don't like the cuts.

"We think that there is enough churning, that there are enough individuals and groups who are calling on the Legislature to make taxes part of the solution that it really has a chance," she said.

Avner says the council's proposal wouldn't erase the entire deficit, but would mitigate the impact of Pawlenty's proposed cuts in areas such as health and human services.

Under the proposal, a married couple with two children earning $25,000 a year would pay $24 more next year. A family earning $60,000 would pay about $200 more, and a family earning $100,000 would pay about $450 more.

Another group came to the Capitol to call for repealing the tax cuts of the last few years. Neighbors Who Care was formed after a town hall meeting in Minneapolis to discuss Pawlenty's budget.

Mary Reed of Minneapolis says Pawlenty's cuts in aid to local governments will affect police and fire services, libraries, and parks. Reed says people involved in the group don't want Minnesota's quality of life to suffer.

"We think the House of Representatives are being too smug in saying that they're going to go along with whatever the governor says. We want his budget declared dead on arrival," Reed said.

Reed says Pawlenty's budget will hurt a lot of people she knows on the north side.

No lawmakers have come out with a specific tax proposal, although some Democrats have talked about an income tax surcharge and repealing recent tax cuts.

Senate DFLers say they expect to propose their alternative to Gov. Pawlenty's budget early next week. DFL leaders say they haven't decided whether to support a tax increase. House Republicans say their plan will mirror the governor's budget with some minor revisions.

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