The Senate DFL tax plan would raise income taxes on Minnesota's top earners and give Minnesota one of the highest income tax rates for the top income bracket.
Sen. Tom Bakk, DFL-Cook, says his caucus decided to increase income taxes on wealthier Minnesotans instead of hiking income taxes for everyone. He says the goal is to increase spending on education and ease local property taxes.
"You can't do major reforms without money. And if we're going to do something major to roll back property tax increases, it costs money," he said. "And if we're going to do something major to roll back property tax releases, it costs money. People, I think, want significant property tax relief and you have to raise money to do that. You can't just tinker around the edges."
Bakk says the new income tax rate would affect joint filers who have annual incomes of more than $250,000 and single filers earning more than $141,000 a year. The proposal would affect about 60,000 tax returns, but the number of actual people hit would be much higher.
The full Senate passed a different tax bill on Friday that would raise business property taxes to pay for part of the Senate's property tax relief plan for homeowners.
Republican's cried foul. Sen. Julianne Ortman, R-Chanhassen, said the two tax bills and another plan to increase both the gas tax and license tab fees are poisoning the state.
"They are the slow trickle of death for the Minnesota economy," she said. "It puts us in jeopardy, hurts our businesses, hurts our economy , it hurts our state, it hurts our families and nobody seems to understand that somebody has to pay the bill."
The Senate proposal affects more Minnesotans than the House DFL income tax proposal. The House plan raises income taxes on high earning Minnesotans but affects just half of the tax returns of the Senate DFL package.
The two plans suggest that the DFL strategy is to force Gov. Pawlenty to protect businesses and wealthier Minnesotans at the expense of education funding and property tax relief.
But DFL House Speaker Margaret Anderson Kelliher said the move is less about politics and more about ensuring that wealthy Minnesotans pay a higher portion of their income in taxes. She points to a recent study that says the state's top earners lose a smaller slice of their income to taxes than the middle class.
"We think it's important to lessen the tax burden on middle class Minnesotans as well as things like tuition," Kelliher said. "That falls on disproportionately on middle class families."
The action means state lawmakers and Gov. Pawlenty have all staked out their positions regarding the budget. House and Senate DFLers are looking for more money to pay for new programs.
Gov. Pawlenty says his two-year budget proposal, which increases spending 9 percent, goes high enough. On his weekly radio show, Pawlenty repeated his opposition to tax increases.
"We didn't raise taxes when we had a huge deficit, why would we have a surplus?" Pawlenty said "So we're trying to fight back this idea that we're going to increase spending, not just by 10 percent, but by something dramatically north of that or larger than that and have tax increases to support that. And that's just not something that we support."
Pawlenty said he will veto every tax increase that lands on his desk. It doesn't appear that there are enough votes in either the House or the Senate to override a veto.
On Friday DFL legislative leaders declined to discuss their response to a veto. Instead, DFL House Majority Leader Tony Sertich of Chisholm, says he'd like to see Gov. Pawlenty compromise.
"It seems like the answer we get from him all the time is 'no' and 'vetoes.' He said he was going to be a different governor. He said he was going to work with Democrats. We've yet to see the cooperation -- the give and take. We're hoping after the break we see a little more give and take," Sertich said.
Pawlenty counters that DFLers have abandoned some of his key budget proposals in their budget blue prints.
Sen. David Hann, R-Eden Prairie, says the recent legislative action has been a waste of time since Pawlenty will veto the bills. He says lawmakers will have to come back and work on another budget after the Easter recess.
"This is political," Hann said. "I wish this was serious. I don't think it is serious. There doesn't need to be a conflict of spending the right amount of money for education and other things and having good sound tax policy. We don't need more taxes in this state."
Legislative leaders and the governor will hit the road during next week's Easter recess, trying to persuade the voters that their approach is the right one for the state.