The tussle over taxes occurs every year at the Capitol. In recent years lawmakers disagreed over whether to raise taxes to cover budget deficits. But there is no deficit this year, so now the debate is over who should get tax breaks and how to pay for them.
DFL Sen. Larry Pogemiller of Minneapolis says his proposal eliminates the "marriage penalty" for some 420,000 Minnesotans. Under state law they have to pay more in taxes than they would if they were single.
Pogemiller's bill would save married couples $74 a year, on average. He also wants to offset the Alternative Minimum Tax for middle-income earners. That tax was originally created to prevent the rich from taking too many tax breaks, but it's now encroaching on more and more middle-income households. Pogemiller is pushing for higher income taxes on the state's wealthiest residents, but he says the state receives no additional revenue.
"It's not a tax increase. It's a revenue-neutral proposal that lowers taxes for hundreds of thousands of Minnesotans modestly and pays for it by asking those on the very highest who currently pay the lowest percent of their income to pay a modest amount increase," according to Pogemiller.
The proposal creates an 8.15 percent tax rate on people who have an annual income above $270,000 for couples and $180,000 a year for single filers. DFL Sen. David Tomassoni of Chisholm says the increase is not much for those taxpayers. It amounts to an average of $1,100 for the year.
"The amount of money that that person is going to be paying in taxes, that's making $500,000, he spills every single day. He spills it off of the table. It's about 50 bucks a month more that they will be paying," he says.
The Senate Tax Committee approved the bill on a 7-to-3 vote. It now heads to a vote by the full Senate. Critics say the plan is a tax increase and also a waste of time since Gov. Pawlenty and the Republican-controlled House will never agree to it.
Republican Sen. Bill Belanger of Bloomington says he's worried that the DFL-controlled Senate, the House and the governor are headed for an impasse on tax cuts.
"I voted 'no' because it increases the top rate on the income-tax bracket. And the governor has already said that he won't go there so why would I want to beat my head against the wall?"
Pawlenty says he doesn't see any need to increase taxes on the state's top income earners.
"I don't know why Senator Pogemiller would want to have a tax increase to pay for reducing the marriage tax penalty when we have surplus money to pay for that," Pawlenty says. "You don't need to raise taxes and we shouldn't so I don't agree with him on that."
Pawlenty's plan would use unspent money in a tax-relief account to cover the cost of ending the marriage penalty. But his proposal does not address the Alternative Minimum Tax.
House Republicans say they also oppose Pogemiller's plan. House Majority Leader Erik Paulsen of Eden Prairie says they'll release their tax-relief package next month. He says the plan will eliminate the marriage penalty and will provide some property tax relief. He says their plan also pays for the tax cuts with the surplus money. Paulsen says any impasse should be blamed on Pogemiller and other Senate DFLers.
"I hope that the DFL Senate is not going to use this as a wedge to try to bog down any productive activity in session because we have been getting a lot of things done on a bipartisan basis so far and just to insist on tax increases that they know is not going to go anywhere would be disappointing," Paulsen says.
Pogemiller says anyone frustrated over the gridlock should point fingers at Gov. Pawlenty. Pogemiller says Pawlenty could break any impasse by agreeing to some of his ideas.
"I would think that we can do things that we have common agreement on and I think with a modicum of gubernatorial leadership and compromise, we can do some things. The governor wouldn't even have to do much other than cooperate a little bit. So I really think it's up to him whether we do anything or not." he says. Two months remain in this legislative session, plenty of time to resolve the differences over tax policy. But the dispute also has the potential to produce another impasse that could further hurt the Legislature's image in an election year.