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Senate Tax Chair Says Tax Breaks Same As Spending

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(credit: Jupiter Images)

(credit: Jupiter Images)

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ST. PAUL, Minn. (AP) — The Republican chairwoman of the state Senate Taxes Committee said Wednesday that exemptions to the state’s sales, income, property and corporate taxes are a form of government spending, and that closing some could be a part of GOP efforts to eliminate the state’s $6 billion budget shortfall.

Sen. Julianne Ortman, R-Chanhassen, made her comments after the Minnesota Department of Revenue released a report detailing tax breaks that riddle the state’s tax code. Some of the most widely known are popular sales tax exemptions on clothing and food purchases, and the mortgage interest deduction to the individual income tax. There are hundreds more that together add up to billions in lost revenue to the state, from sales tax exemptions on a number of professional services to income tax breaks for working families, charitable deductions, child care and long-term care.

Ortman did not specify which tax breaks might be targeted but said she and fellow lawmakers will review that in the coming weeks. That could cause conflict among those statehouse Republicans who say eliminating tax breaks is the same as a tax increase, including Ortman’s House counterpart, House Taxes Committee Chairman Greg Davids.

Ortman said protecting special carve-outs that only benefit certain taxpayers forces overall tax rates higher.

“What we’re doing is forgoing revenue,” Ortman said. “We should be viewing each of these expenditures as a spending program, and we came here to review every single aspect of state spending.”

The Department of Revenue’s “Tax Expenditure Review Report” found that tax breaks escape the scrutiny applied to most state spending. That’s because direct spending requires legislative re-authorization every two years, while tax breaks once on the book are not subject to regular review. Few have fixed expiration dates.

The report found exemptions to the state’s individual income tax would, if closed, generate more than 50 percent more than the total revenue currently collected. Sales tax exemptions are proportionally even bigger: The total amount lost to sales tax breaks actually exceeds the amount of money generated by the tax.

“Yet tax expenditures have only rarely been part of an open discussion as to how Minnesota uses state resources,” the report said.

Sen. Roger Reinert, DFL-Duluth, has introduced a bill to set expiration dates for tax breaks and create a commission to review tax breaks for individual usefulness prior to their expiration dates.

At a hearing Wednesday of Ortman’s Taxes Committee, Reinert proposed adding to his bill that every time a tax break expires the overall tax rate should be correspondingly lowered. Senate Minority Leader Tom Bakk, DFL-Cook, suggested a better way to use the money collected from closing tax breaks would be to replenish the state budget’s rainy-day reserves.

Ortman said she sees merit in Reinert’s bill but hopes for a faster review of at least some tax breaks in order that closing some might help trim the budget shortfall. Ortman has previously said she wouldn’t support closing the sales tax breaks on clothing or food, and acknowledged that efforts to close just about any tax break is likely to run into opposition from some interest group.

But Ortman suggested that looking at tax breaks could be an easier sell than Gov. Mark Dayton’s proposal to hike income taxes on top earners, which has gotten a unanimously frosty reception from Republican lawmakers.

“I think there’s a lot of political will here to look at the whole picture, and not just the pieces we’ve traditionally looked at when we look at our budget,” Ortman said.

(© Copyright 2011 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.)

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