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Senate approves income-tax increase
by Michael Khoo, Minnesota Public Radio
May 6, 2005

"The governor's policies are forcing up property taxes," said Sen. Larry Pogemiller, DFL-Minneapolis, chairman of the Senate Taxes Committee. (MPR Photo/Michael Khoo)

The DFL-controlled Senate has approved an income-tax hike that would raise almost $800 million from the state's wealthiest residents over the next two years. Republicans say the Senate tax plan is sure to stifle job growth, but Democrats say the tax increase would be temporary and is the only fair way to fund the education and health care programs that lawmakers from both parties have supported.

St. Paul, Minn. — For the past couple weeks, the Senate has passed a string of spending bills to fund everything from environmental programs to state government to education. All have attracted bipartisan support. One -- the K-12 appropriations bill -- passed unanimously. So Senate Democrats say their tax plan is simply recognition that those investments come with a price.

DFL Senate Majority Leader Dean Johnson says Minnesotans will support the tax hike if they understand it directly funds popular state services.

"Common, everyday folks who are going to work today, they want to know that their children are in school getting an education. They want to know their sons and daughters are over here at the university or in the MnSCU system getting a competitive education. And they want to know they have a health care system that has some kind of a safety net," Johnson said.

The Senate proposal creates a new 10.65 percent tax bracket that would affect about 43,000 of the state's wealthiest residents. The new bracket would kick in on incomes exceeding roughly $300,000 a year for married, joint filers.

For single taxpayers, the threshold is close to $200,000. The plan has been moderated slightly since it was first introduced on Wednesday, shaving off about $100 million a year in new tax revenue.

But it remains too rich for Senate Republicans. The plan was adopted on a 35-to-28 vote, without a single GOP vote in favor. And Gov. Tim Pawlenty, who's called the plan "profoundly stupid," made it clear he would promptly veto it if it arrived on his desk.

The Senate tax plan also raises some specific corporate taxes, bringing its total price tag to about $1.3 billion over the next two years. But it's the income tax hike that's touching off the biggest furor among Republicans. And they note many small businesses will be hit since most compute their tax liabilities based on individual income tax rates.

The state Republican Party has already unveiled a television spot criticizing the Senate's actions.

"That would make Minnesota the highest-taxed state in the nation: Number one. Republicans have a better plan," the ad says.

Republicans have consistently opposed any general state revenue increases and have called for the state to moderate its spending growth, in part by reducing eligibility for publicly-subsidized health insurance and offering a less generous spending increase for K-12 education.

The governor and key GOP lawmakers have also proposed building at least one new casino to generate state revenue.

But DFL tax chair Larry Pogemiller of Minneapolis says the Republican belt-tightening has only forced others -- including cities, counties and school districts -- to pick up the slack by raising local property taxes. And he says the governor's no-new-tax pledge hasn't stopped Pawlenty from increasing state revenue by selectively raising a host of fees.

"A fee is a tax," according to Pogemiller. "$1.5 billion in increases in fees and tuition. That is directly -- directly -- linked to the executive of this state."

Pogemiller also says the Senate income tax is temporary; meant to blink off once the state's budget outlook improves and once prior rounds of accounting shifts and delayed state payments are repaid.

But Republican Sen. Tom Neuville of Northfield says the Senate's shown no ability to keep costs down; an indication, he says, that the tax will never be retired.

"Well that's not going to happen if we keep funding those health care programs that are going up 20 percent," he said. "We're going to have deficits for the foreseeable future. That will keep happening. And this tax that you call temporary won't come off for a long, long time."

Neuville says the Senate tax proposal has set Democrats on a collision course with the governor and the GOP-run House, one that he says will prevent lawmakers from adopting a budge by the constitutionally-set adjournment day of May 23.

HOW THEY VOTED
By The Associated Press

The 35-28 roll call Friday by which the Senate passed its tax bill, which would raise some taxes. Voting "yes" were 34 Democrats and 1 independent. Voting "no" were 28 Republicans.

REPUBLICANS VOTING NO

Bachmann (Stillwater); Belanger (Bloomington); Fischbach (Paynesville); Frederickson (New Ulm); Gerlach (Apple Valley); Hann (Eden Prairie); Johnson, Debbie (Ham Lake); Jungbauer (East Bethel); Kierlin (Winona); Kleis (St. Cloud); Koering (Fort Ripley); Larson (Fergus Falls); LeClair (Woodbury); Limmer (Maple Grove); McGinn (Eagan); Michel (Edina); Neuville (Northfield); Nienow (Cambridge); Olson (Minnetrista); Ortman (Chanhassen); Ourada (Buffalo); Pariseau (Farmington); Reiter (Shoreview); Robling (Jordan); Rosen (Fairmont); Ruud (Breezy Point); Senjem (Rochester); Wergin (Princeton)

REPUBLICANS NOT VOTING

Day (Owatonna); Dille (Dassel); Gaither (Plymouth)

DEMOCRATS VOTING YES

Anderson (St. Paul); Bakk (Cook); Berglin (Minneapolis); Betzold (Fridley); Chaudhary (Fridley); Cohen (St. Paul); Dibble (Minneapolis); Foley (Coon Rapids); Higgins (Minneapolis); Hottinger (St. Peter); Johnson, Dean (Willmar); Kelley (Hopkins); Kubly (Granite Falls); Langseth (Glyndon); Lourey (Kerrick); Marko (Cottage Grove); Marty (Roseville); Metzen (South St. Paul); Moua (St. Paul); Murphy (Red Wing); Pappas (St. Paul); Pogemiller (Minneapolis); Ranum (Minneapolis); Rest (New Hope); Saxhaug (Grand Rapids); Scheid (Brooklyn Park); Skoe (Clearbrook); Skoglund (Minneapolis); Solon (Duluth); Sparks (Austin); Stumpf (Plummer); Tomassoni (Chisholm); Vickerman (Tracy); Wiger (North St. Paul)

DEMOCRATS NOT VOTING Sams (Staples)

INDEPENDENTS VOTING YES Kiscaden (Rochester)