The House tax bill raises $700 million less than the Senate tax bill but relies on a wider variety of tax hikes. Under the plan, a new income tax rate of 9 percent will be created for joint filers earning more than $300,000 a year.
The plan also raises the cigarette tax 54 cents a pack and increases alcohol taxes by 3 to 5 cents a drink.
"This bill proposes the most significant tax overhaul in 20 years," said the bill's chief author Rep. Ann Lenczeswki, DFL-Bloomington.
In addition to the tax hikes, Lenczewski's bill removes a variety of tax breaks for homeowners and businesses. Charitable contributions, the mortgage interest tax deduction and the property tax deduction for homeowners are eliminated and replaced with a tax credit based on income. The bill also eliminates several business tax breaks, like the Research and Development credit and parts of the governor's JOBZ program.
Lenczewski said she wants to clean up the state's tax code.
"Which is to sweep the tax code clean of all of the preferential treatment and subsidies and things we can't afford anymore and instead bring a fairer, more progressive income tax to Minnesotans based on the ability to pay," she said.
House Democrats use the tax increases, spending cuts and an accounting shift to erase a projected budget deficit of $4.6 billion.
The tax bill also aims to help counties facing cuts in state aid.
Rep. Paul Marquart, DFL-Dilworth, said it allows counties to impose a sales tax to offset state aid cuts.
"Instead of just raising those property taxes to make up those cuts or cut services, we're going to give you another option," he said. "We're going to allow you, if you wish, to impose a one half cent sales tax."
The bill also removes the cap on property tax increases. Republicans argue that the tax hikes in the bill will harm the state's struggling economy. Rep. Laura Brod, R-New Prague, said it's unfair to average Minnesotans.
"We're going to start seeing more losers than winners so this bill isn't about a more progressive system, it's more about a more regressive tax code," she said. "While the argument is about taking away all of these deductions and about creating tax fairness. If your definition of what's fair is taxing those who least afford it than I guess you'd want to vote for this bill."
Republicans offered few amendments to the bill, saying it was too bad to fix. They criticized the bill's taxes on digital downloads and on sales between private individuals. But they were most vocal over a portion of the bill that would tax homeowners who use high amounts of energy during the winter months.
Rep. Marty Seifert, R-Marshall, said it's unreasonable to tax heat in a cold state.
"The Democrats are so desperate for your tax dollars, they want to tax home heating fuel in the state of Minnesota where it was 20 below zero in January of this year," he said. "Unbelievable!"
The bill was amended to exempt low income Minnesotans.
The House action on the bill doesn't mean it will become law. It has to be reconciled with a Senate tax plan that increases income taxes on nearly every working Minnesotan.
Assuming the Democrats who control the House and Senate reach an agreement on tax increases, Republican Gov. Tim Pawlenty is still standing in their way. He has threatened to veto any bills that raise taxes.
The constitutional deadline for lawmakers to finish their work is May 18th.