Lawmakers passed the measure on a vote of 74 to 59 after a surprisingly brief debate. Republicans spent nearly five hours speaking against the tax bill. But they offered no amendments to change it. They say Governor Pawlenty's veto threat makes the bill dead on arrival.
The massive document touches every aspect of the state tax code. The new provisions number in the hundreds and range from income tax credits for combat troops to a sales tax exemption on the purchase of grain storage bins. But House Democrats have put nearly all of their emphasis on what the bill does for property taxes. House Tax Committee Chair Ann Lenczewski, DFL-Bloomington, says the bill would ease the property tax burden on 90 percent of Minnesota homeowners.
"It is the answer to the call of Minnesotans to ask us to do something about the property tax system. To base the property tax system on the ability to pay. To help people pay their property taxes in a fair and responsible way. And that's exactly what this bill does here today," Lenczewski said.
The amount of property tax relief would total $442 million next year and $542 million in 2010. Rep. Paul Marquart, DFL-Dilworth, says homeowners, farmers, senior citizens and veterans will see real cuts in their tax bills.
"We have to provide the property tax relief in this bill today because nothing's been done in five years. And the people out there are pleading for property tax relief. And we've proposed here a revenue neutral plan that provides property tax relief to those who need it most," Marquart said.
The tax bill funds the property tax relief through a new nine percent income tax rate for affluent Minnesotans. The new rate would apply to joint filers earning more than $400,000 dollars a year and for single filers making more than $226,000 a year. Republicans strongly oppose the increase. They argue businesses won't want to expand in Minnesota, and some wealthy residents will want to leave the state. Rep. Steve Smith, R-Mound, took aim at the bill.
"This is one of the most massive, invasive, pervasive, poor-folk-hurting, middle-class-back-breaking, tax-the-rich-bashing, class-warfare-baiting tax increase I have ever seen in my time as a state representative," Smith said.
Several Republicans were also predicting a short lifespan for the legislation. Rep. Dean Simpson, R-Perham, reminded lawmakers that Gov. Tim Pawlenty is ready to veto the bill.
"The governor has stated all along that he would not accept any kind of a tax increase. And I personally believe him. I think he's a man of his word. I think he's indicated this quite often and from out of the chute. So, I'm disappointed that we're here today doing what we're doing. This bill is dead on arrival," Simpson said.
The House bill will have to go to a conference committee where negotiators will try to reconcile differences between the House and Senate bills. The Senate has passed a broader income tax designed to fund both property tax relief and education.
With the veto threat looming, earlier this week, Rep. Lenczewski suggested the income tax provision might not survive the negotiations. But House Speaker Margaret Anderson Kelliher sees it differently.
"I think that there's very likely to be a bill that goes to the governor that includes the income tax. I think it's a matter of working together with the Senate to make that as clear as possible for Minnesotans, the debate between property taxes and education funding," Kelliher said.
Governor Pawlenty is also expecting an income tax increase to arrive on his desk. Shortly before the House floor session, Pawlenty told reporters the situation was unfortunate but that's the way it is.