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Senate DFLers haven't backed off tax increase plan
by Michael Khoo, Minnesota Public Radio
May 1, 2003

Gov. Pawlenty appeared at a National Day of Prayer event Thursday. He also reiterated his opposition to any tax increases to solve the state's budget deficit, even while Senate DFLers suggested $1 billion in higher taxes. (MPR Photo/Laura McCallum)

Senate Democrats began discussions Thursday on proposals for more than $1 billion in new taxes over the next two years. DFLers say the extra revenue is necessary to blunt the spending reductions outlined in proposals favored by Gov. Tim Pawlenty and House Republicans. But Pawlenty says he'll stand by his pledge to reject any new tax increases, and a key DFL lawmaker says it's likely the governor will carry the day.

St. Paul, Minn. — The Senate plan relies on a new income tax bracket for the state's highest earners -- married couples making roughly $250,000 and single filers earning roughly $125,000. Incomes over that amount would be taxed at 9.4 percent by 2004, bringing in almost $500 million during the biennium.

DFL Majority Leader John Hottinger told the Senate Tax Committee that the state's wealthiest benefited the most from the economic growth of the '90s and, so far, have been spared from Republican efforts to balance the budget.

"If we truly believe that Minnesotans should share in this dramatic problem we have in our state budget, if we truly believe it's a statewide problem that should be looked at and responded to by all Minnesotans, this is a way to have those people share," Hottinger says.

I accept that the governor's budget is by and large going to become law. What I don't accept is that I have to become complicit in his property tax increases. ... And I certainly do not support his level of cuts. - DFL Sen. Larry Pogemiller

The Senate proposal would also boost the 48-cents-per-pack cigarette tax by $1, and broaden the scope of corporate taxes. DFLers estimate the cigarette tax would net more than $500 million in new revenues over the next two years. The corporate tax provisions would bring in another $180 million.

Hottinger says the extra dollars are needed to protect funding for schools, higher education, health care, and aid to cities and counties. But business interests say the tax hikes would weigh down an already anemic economy. Duane Benson is the executive director of the Minnesota Business Partnership.

"Less in wages or less in job growth, less in return on investment and capital formation," says Duane Benson, executive director of the Minnesota Business Partnership. "Probably higher prices. The provision on taxes -- you probably have less higher incomes. All of those things, there will be a reaction."

Gov. Tim Pawlenty dismisses the Senate's effort to boost state revenues. Pawlenty has pledged not to raise state taxes, and has offered a $4.2 billion deficit reduction package that relies on spending cuts and accounting shifts. With just over two weeks left in the regular legislative session, Pawlenty says DFLers should recognize no-tax committment.

"We're rejecting it out of hand. We'll hear them out, and, you know, maybe there're some new insights they can share with us. But, you know, we're not raising taxes, and at some point we've got to move beyond that point. They need to make their point -- I understand that. But I'm not raising taxes," says Pawlenty.

But Democrats argue Pawlenty's budget squeezes state spending so tightly that cities and counties will be forced to accomodate by raising local property taxes. DFLer Larry Pogemiller of Minneapolis chairs the Senate Tax Committee.

"I don't want to put too fine a point on this, but his position is not a position of no tax increases. His position is a position of no state tax increases, which means there will be significant property tax increases," says Pogemiller.

Still, Pogemiller says he's ready to concede that Pawlenty's budget plan is likely to prevail. But he says that doesn't mean taxpayers should breathe easier.

"I accept that the governor's budget is by and large going to become law. What I don't accept is that I have to become complicit in his property tax increases. That's where I'm personally at. And I certainly do not support his level of cuts," Pogemiller says.

Pawlenty, however, has proposed property tax levy limits to restrain growth in local government spending. He and Republican legislative allies say local officials can be held accountable for their spending decisions at the ballot box.

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