Minn. taxes on way up, but details still up for debate
Minnesota taxes will rise by more than $2 billion in the next two-year state budget, but who pays how much on what is still being hammered out as the Legislature speeds toward a Monday deadline for the session's adjournment.
Here's a look at what is known and what is left to be decided on taxes, which are being raised to plug a future $627 million budget hole and increase spending for education, property tax relief and job creation grants.
TAXING THE TOP
MPR News is Member Supported
What does that mean? The news, analysis and community conversation found here is funded by donations from individuals. Make a gift of any amount today to support this resource for everyone.
Gov. Mark Dayton, whose family founded the department store chain that spawned Target Corp., campaigned on a "tax-the-rich" platform. In year three of his term, that will come to pass.
It's the workhorse tax in the budget framework between Dayton and Democrats who run the Legislature. They have agreed to establish a new fourth tier on the state's income tax. It would hit the top 2 percent of earners -- applied to taxable income above $250,000 for married couples and $150,000 for single filers.
The new tax rate is still subject to negotiation, but will fall somewhere between 8.49 percent and 9.85 percent. That's above the state's current top tax rate of 7.85 percent.
THE TOP OF THE TOP
The tax burden could be even heavier for some.
As part of the agreement, there will be a temporary surcharge on taxable income above $500,000. The money derived from that will pay off roughly $850 million in state debt to schools racked up during prior budget fixes. Once that debt is erased, the surcharge goes away.
Here's the catch: When lawmakers vote they won't know the tax rate. It probably won't be set until August, when the state budget agency formally closes the books on the last fiscal year. Any money left over from this fiscal year goes to repay schools, meaning the amount the surcharge needs to raise gets smaller.
Rep. Ann Lenczewski, the House Tax Committee chairwoman, said she expects the surcharge to be a couple of percentage points or less. It would start with this tax year.
People who smoke or chew tobacco will play a big role in bailing out the state budget. Hundreds of millions of dollars will be drawn from higher tobacco taxes. The per-pack tax on cigarettes will rise by at least 94 cents, but perhaps as much as $1.60.
Senate Majority Leader Tom Bakk said he would be surprised to see Minnesota's tax shoot past the Wisconsin rate. That state now charges $2.52 per pack, and Minnesota would match that by upping its tax by $1.29.
The excise tax on moist snuff and cigars could go up by 20 percent or more.
STRETCHED SALES TAX
More things will fall under the state sales tax, but the list isn't nearly as long as it once was.
The tax will touch services that are now exempt. Businesses that seek custom computer software and those that route their goods through warehouses will pay tax on those services, for instance. Admission to premium stadium seats and suites at sporting events will be taxed, too.
Most goods and services sold directly to consumers that weren't taxed before won't be taxed now. A plan to tax clothing, tattoos, wedding services, over-the-counter drugs, home maintenance and car repairs was dropped.
The extra money from the sales tax would pay for a sales tax exemption planned for purchases by city and county governments. The exemption will cost state government about $100 million per year, but lawmakers say it should ease pressure on locally imposed property taxes.
House Democrats are keeping open the possibility of raising beer, wine and liquor taxes for the first time since 1987. But their budget dance partners don't want to go that route, especially top officials in the Senate.
The House plan would fetch more than $338 million from the added booze tax. Its backers claim that it amounts to 7 cents per drink, but brewers and others in the alcohol industry argue that the true impact on consumers could be twice that because the cost will be passed throughout the production and retail chain.
While state taxes rise, Democrats are confident that local property taxes will be tamped down -- or even cut.
The budget outline has $400 million set aside for programs aimed at preventing increases in the taxes imposed by local governments. Some of the money takes the form of extra aid to cities and counties. Some will be used to buy off levies that schools use to supplement their state aid.
And some will go directly to renters and homeowners through existing tax relief programs.
Lawmakers must finish work on this bill by the adjournment deadline of next Monday, May 20, at midnight.