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Senate passes tax bill
The Minnesota Senate on Tuesday approved more than $1 billion in new taxes to ease the state's budget crunch. The measure passed on a 35-to-31 party line vote with Democrats in support. The tax plan also contains funding provisions for K-12 education, and must now be reconciled with the no-new-taxes approach favored by Gov. Tim Pawlenty and House Republicans.

St. Paul, Minn. — The proposed Senate taxes are a cornerstone of the DFL budget package, erasing roughly one-third of the state's $4.2 billion projected deficit. The new revenues are drawn mainly from a new income tax bracket for highest Minnesota wage-earners and a $1-per-pack increase in the cigarette tax.

Gov. Pawlenty and House Republicans have sworn off those sorts of state tax increases. But Senate Taxes Committee Chair Larry Pogemiller says the governor's approach merely camouflages some very real revenue increases. The Minneapolis DFLer says the Senate approach blunts many of the service cuts and fee increases necessary under the governor's plan.

"Tuition, fees, co-pays on health insurance. And then the big one. The big kahuna. Property taxes. Pawlenty property taxes," he told senators on the Senate floor.

Pogemiller says the governor's reduced aid payments to cities and counties will force substantial property tax increases at the local level. By contrast, the Senate plan imposes a freeze on most property tax levy increases. Pogemiller says that should protect homeowners from what he calls the hidden taxes in the governor's plan.

The DFL package, however, does call for an increase in the statewide property tax for businesses. That revenue would be directed to K-12 education, funding for which is included in the tax bill.

"We are just living up to our commitment to fund education; no frills, no inflation," said Sen. LeRoy Stumpf, DFL-Thief River Falls, who chairs the Senate E-12 Budget Division. "It doesn't seem like a big, glorious thing, and it isn't. It would be much nicer if we could say there would be a way to put in some money for inflation."

Although Pawlenty has pledged to protect K-12 classroom funding, his budget relies on local tax levies to maintain per pupil funding in later years. And he cuts funding for after-school and summer programs as well as early childhood education. The Senate maintains those programs.

But Sen. Julianne Ortman, R-Chanhassen, says the DFL approach is no more than an outdated "tax-and-spend" philosophy. She says the new taxes would drag down any hoped-for economic recovery.

"Independent businesses -- small, indepedent business owners -- will be affected by that tax. And when they're affected by that tax, they're not going to invest, they're not going to hire new employees, and they're not going to be able to save dollars that will further stimulate the economy," she said.

The governor's tax plan, which holds taxes constant while cutting aid payments to cities and counties, was offered as an amendment. But that proposal was defeated on a 46-to-19 vote with 12 Republicans joining the opposition.

Democrats argue that's a sign that Pawlenty's approach is too exteme even for members of his own party.

Sen. Linda Berglin, DFL-Minneapolis, chairs the Health, Human Services, and Corrections Budget Division. She says without the new revenue from the cigarette tax, thousands of Minnesotans will suffer from service reductions.

"Keeping our services for long-term care, keeping our Meals on Wheels program, keeping our services for pregnant women, keeping our acces to healthcare for low- and middle-income people without healthcare coverage. These are important things that need to be maintained in this state," Berglin said.

Gov. Pawlenty, however, says he's not surprised by the results in the Senate. And he points out that, although he has scaled back the projected growth in state government, his budget proposal is nonetheless larger than any in state history.

"We are not, overall, reducing the budget in the state of Minnesota. If you look at the press clippings and emphasis about how we're ruining the state, it doesn't get reported very much or very often that we're actually increasing the state's budget," Pawlenty said.

The Senate tax and education bill is the final piece of the Democratic majority's budget plan. It must now be reconciled with the approach taken by House Republicans.

GOP lawmakers have closely followed Pawlenty's lead, but they've proposed a state-operated casino at the Canterbury Park Racetrack to generate some new revenues.

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