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Legislature heads for day of decision on taxes
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Those opposed to increased taxes rallied at the Capitol on Friday. (MPR Photo/Laura McCallum)
As the budget debate heats up at the Capitol, groups opposed to tax increases are making their voices heard. The Taxpayers League of Minnesota holds its annual tax day rally at the Capitol on Friday, and business groups have been running ads around the state. The groups say raising taxes will stifle job growth in the state. Advocates for a tax increase say scrimping on education and other state priorities will do far more harm to Minnesota's economy.

St. Paul, Minn. — The Coalition of Minnesota Businesses and the Minnesota Association of Realtors have been running a nearly half-million-dollar ad campaign urging lawmakers to hold the line on taxes.

"We can return to the days of tax and spend. But a better idea is simply to let the economy work for us. To grow and spend, rather than tax and spend," says an ad currently running.

The head of the Minnesota Business Partnership, Charlie Weaver, says creating jobs will boost the state's revenues without a tax increase.

"In Minnesota over the last five years, we've had a good, strong, growing economy, the best economy in the Midwest. And we think the reason is because we've kept the lid on taxes. If we change that strategy now, if we start raising taxes, we know from our experience that jobs will leave," according to Weaver.

Weaver and other business leaders say they've talked to employers who may consider moving jobs out of state if there's a tax increase.

Groups on the other side of the tax debate say Minnesota's economy is strong not because of its tax rates, but because of the state's commitment to education and other public services.

Wayne Cox of the labor-backed Citizens for Tax Justice says economists agree on the necessary ingredients for strong growth.

There's so many more important factors, like 9/11 or other big events, that have much more of an impact on job growth and on economic growth than what Minnesota does with its marginal tax rate.
- U of M professor John Budd

"If you have a good education system, if you fund your transportation system adequately, you have good research -- basically the states that do that, do better than the states that don't. And it takes taxes to do that," Cox says.

Cox says lawmakers should raise the state's top income tax rates to where they were before tax cuts that were enacted in 1999, when the state was swimming in surplus money. He says since the Legislature cut tax rates, Minnesota has lost jobs instead of gaining them.

While it's true that Minnesota currently has fewer jobs than it did in early 2001, economists say the job loss largely stems from that year's recession and the effects of 9/11.

John Budd, a professor in industrial relations at the University of Minnesota, says both sides of the debate can find evidence to back up their claims, and the truth is probably somewhere in the middle.

"There's so many other factors, much more important factors like 9/11 or other big events, that have much more of an impact on job growth and on economic growth than what Minnesota does at the state level with its marginal tax rate," according to Budd.

Budd says the current debate at the Capitol echoes the debate over Reaganomics in the 1980s. And the arguments could come to a head in the coming days, when the DFL-controlled Senate releases its budget blueprint. That plan is likely to include a tax increase to increase funding for schools, health care for low-income Minnesotans and other priorities.

The chair of the Senate Taxes Committee, DFLer Larry Pogemiller (Senate veteran relishes role of Pawlenty foe ) of Minneapolis, says taxes are going up in Minnesota regardless of whether a DFL or Republican budget is enacted.

"Taxes are going up under everybody's suggestions. And the real question is: are they going to be distributed fairly or not? And if you put them on property taxes, I argue that's not the fair way to do it. And these increased fees, I don't believe that's fair, they're the most unfair tax, those fees," Pogemiller says.

Pogemiller says Gov. Pawlenty's budget will lead to higher property taxes and higher fees. House Republicans have released a budget plan that largely mirrors the governor's proposal.

Republican leaders say they won't pass a budget that raises state taxes. Business groups and the Taxpayers League say they'll keep the pressure on the Legislature to make sure that doesn't happen.