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Income, Sin Taxes In Minn. House Dem Revenue Plan

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(credit: CBS) Pat Kessler
Pat Kessler knows Minnesota politics. He's been on the beat long...
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ST. PAUL, Minn. (AP) — Cigarette smokers would pay $1.60 more per pack, wine drinkers would shell out 47 cents more per bottle and Minnesota residents who earn more than $500,000 per year would pay the nation’s third-highest state income tax rate under a plan proposed Monday by state House Democrats.

Those tax hikes and a few others are the opening House bid in a budget negotiation that will play out over the next five weeks among majority Senate Democrats and Democratic Gov. Mark Dayton. The House plan would fetch about $2.6 billion in the next two years as a way to plug a deficit, cut property taxes, retire old debt and increase school aid.

A floor vote is expected next week.

After a decade of budgets propped up by accounting gimmicks and cost-cutting, Democrats said they were taking a straightforward approach to the budget.

“We need a new direction as badly as we need a change in the weather and that is what we are offering today,” said House Majority Leader Erin Murphy. “This is a plan that is responsive to the voices and the values and the priorities of Minnesotans.”

Republicans were quick to hammer the proposal as going far beyond a ‘tax-the-rich’ promise Democrats campaigned on last fall.

“This is not a ‘tax-the-rich’ bill. This is a ‘tax-the-rich, tax-the-middle-class, tax-the-lower-class, tax-everyone-as-much-as-you-can’ bill,” said Rep. Greg Davids, the lead Republican on the House Taxes Committee. “They’re going to have to start a reality show — Taxes Gone Wild — because they’re writing chapter after chapter after chapter.”

Minnesota’s alcohol taxes, which have been static for about 25 years, would roughly double. The proposed tax amounts to seven cents more per 12-ounce bottle of beer and $1.58 more for each bottle of hard liquor. The cigarette tax would be more than twice as high as the $1.23 charged now.

Democrats defended the booze tax by saying alcohol consumption is voluntary and carries societal costs when the product is abused. Rep. Ann Lenczewski, the committee chairwoman, said a drink a day would cost a person $25 per year in higher taxes.

None of the new taxes are assured. A Senate tax plan still being prepared would expand the sales tax to some consumer services and clothing. That isn’t in the House plan.

There is a new tax on sports memorabilia, which would be used to address a projected shortfall in the financing for the Vikings stadium construction authorized a year ago.

The bulk of the new money in the House proposal comes through the income tax.

Married filers with taxable income above $400,000 and singles making at least $226,000 would be subject to an 8.49 percent tax rate, more than a half- point higher than they pay now. It’s a lower rate and higher income threshold than Dayton has proposed and would affect an estimated 37,300 returns.

The rate and income levels in the House plan mirror the taxes recently imposed in Washington, where Republicans have a share of power.

But there’s a catch in the Minnesota version: On income above $500,000, a temporary tax surcharge would kick in.

The permanent higher tier combined with the surcharge would give Minnesota an upper rate of 12.49 percent, behind only California and New York. Democrats said the temporary surcharge would end once $1.2 billion is collected, enough to pay off the state’s past debt to schools and then some. The surcharge would be paid on about 21,000 returns.

Dayton and Senate Democrats have voiced reservations over the surcharge and the idea of making Minnesota an outlier on income taxes.

Corporations with foreign operations would see a higher tax on their overseas profits.

House Speaker Paul Thissen said there is no easy way to solve the state’s budget troubles while also boosting spending on priorities, such as early childhood programs and freezing public college tuition.

“Despite what Republicans seem to think and what I guess we all wish was true, those critical investments are not free,” Thissen said.

There are sweeteners in the bill.

A property tax refund program that would benefit as many as 530,000 homeowners would get beefed up, benefitting people who have seen those taxes take a bigger bite of their income. Businesses, mainly manufacturers, would get relief from a sales tax on certain capital equipment. And three mega-development projects would get tax subsidies: the Mall of America, the 3M Co. world headquarters and the Mayo Clinic in Rochester.

In addition, the state would conform to some recently enacted federal tax changes that increase deductions for married filers, student loan interest, dependent care and a range of other write-downs.

(© Copyright 2013 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.)

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