Senate passes $2 billion tax increase

Minnesota State Capitol
The debate over taxes is taking center stage at the Minnesota Capitol.
MPR Photo/Tom Weber

The senate bill increases income taxes on 85 percent of Minnesotans. It would also create a new income tax rate of 9.25 percent for joint filers earning more than $250,000 a year.

Despite repeated warnings from Gov. Pawlenty that tax increases are unacceptable, DFL Senate Majority Leader Larry Pogemiller said Minnesota has to balance its budget over the long term, and a tax increase has to be part of the mix to do it.

"There is no attempt to raise taxes here to spend more," he said. "We're raising taxes simply to balance the budget even after we've made probably the largest cuts ever in the history of the state."

The bill's author, DFLer Tom Bakk of Cook, changed it to allow the income tax increases to blink off as the state's budget situation improves.

The DFL Senate budget plan uses the tax increase, federal stimulus money and across-the-board spending cuts to erase the state's $4.6 billion budget deficit. Bakk said those spending cuts would be even more painful if taxes weren't in the mix.

"This whole budget solution and the cuts that we're seeing are predicated on this bill passing," he said. "Without this bill, the cuts are going to be significantly deeper."

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Republicans say the DFL-backed plan would hobble the state's already ailing economy.

Sen. Julianne Ortman, R-Chanhassen, said Democrats appear determined to raise taxes in a year when no one else thinks it's a good idea.

"Why can't we allow Minnesotans to weather the storm first, address their family's budgets first without raising income taxes?" she asked. "Why can't we allow Minnesota businesses to recover first? Why is the government's balance sheet more important than Minnesotans balance sheet?"

"Why can't we allow Minnesotans to weather the storm first, address their family's budgets first without raising income taxes?"

Republicans failed repeatedly to make changes to the bill. They tried to expand business tax breaks and extend them to companies that invest in renewable energy.

Senate did include a measure that would provide a tax break to help a southeastern Minnesota meat processing facility rebuild after a massive fire. Sen. Steve Murphy, DFL-Red Wing, said the measure would save jobs in St. Charles.

"This is 250 jobs in the city of St. Charles," he said. "Now anyone that represents smaller communities understands that 250 jobs in a community this size is a large percentage of your workforce."

The House has its own version of a tax bill that it will debate Saturday. It differs from the senate plan by raising alcohol and cigarette taxes. Its income tax increases are more limited, but it does raise taxes on the state's top earners, meaning that even after House and Senate leaders work out there differences they're still likely to be on a collision course with the governor.

Sen. Dick Day, R-Owatonna, urged Democrats to send a tax bill to the governor as quickly as possible so they can stop talking about across the board income tax increases.

"When the House and the Senate get together and they throw all of the darts at the dartboard and try to hit at least 25 of the 50 things that we can tax, it will hopefully be relatively quick," he said. "So we can all be back here next Thursday or Friday and start all over. Because it makes absolutely no sense in taxing people who make $30,000."

Sen. Dan Skogen, DFL- Hewitt, was one of the 11 Democrats to vote against the bill. He said he could support a tax increase but believed the Senate plan was too large.

"I live in Otter Tail and Wadena County, and it would have been hard for me to go home and say this was good for the people I represent," he said.

Sen. Debbie Johnson, R-Ham Lake, was the only Republican to vote for the bill.

Gov. Pawlenty said earlier this week that he would veto any bills that include any tax increases. The constitutional deadline for lawmakers to finish their work is May 18.