In the end, income tax increase may not have the votes

As the state House began work Monday on a tax bill that would provide tax relief to 90 percent of Minnesotans by raising income taxes on the highest earners, the head of the Taxes Committee signaled that the income tax increase might not make it past the governor's desk.

The chairwoman, Rep. Ann Lenczewski, DFL-Bloomington, predicted that the bill would pass the House but acknowledged that not every DFLer is expected to vote for it. Although DFLers hold a strong majority, with 85 out of 134 seats, they would need at least a handful of Republican votes to override an expected veto by the governor. And those votes may be hard to find.

The House tax bill, which was presented in committee on Monday and could be voted on later this week, would create a new, fourth tax tier of 9 percent on incomes of more than $400,000 for joint filers but would fall heaviest on those earning more than $1 million, Lenczewski said.

Lenczewski expects the bill to pass the conference committee but it "wouldn't be out of the question" for that controversial provision to fail, she said in response to a question about its chances.

"I won't predict whether an income tax would pop out of the conference committee or if there will be something different," she told reporters.

Should something different happen, she acknowledged, the DFL-led House would probably have to whittle down its $442 million property tax relief proposal.

But, Lenczewski said, "I do think the governor will come to the [negotiating] table with more resources."

That speculation drew a tepid response from Brian McClung, Gov. Tim Pawlenty's spokesman. McClung said that "the increase is where we're at now. The Democrats are looking for [a spending] increase on top of the almost 10 percent the governor has already proposed."

McClung called the income tax proposal, which would raise $452 million over the next two years, a "nonstarter."

Revenue Commissioner Ward Einess said that the bill does include some of Pawlenty's priorities and that "it doesn't kill JOBZ," a pet initiative of the governor's that offers tax breaks to expanding businesses in certain areas of the state.

Lenczewski "did her level-headed best, and there are things in it the governor cares about," Einess said, "but it's hard to get past all the tax increases."

Property tax help for most

Rep. Paul Marquart, DFL-Dilworth, who crafted the property tax proposal, said it also would strongly link the tax with the ability to pay, addressing what he said is the biggest complaint about the property tax.

Anyone who pays more than 2 percent of his or her income in property tax would get a refund from the state, he said, which includes most homeowners.

Some of the relief would come in the form of increased aid to local governments and school districts, he said, but homeowners in 2008 also would see an actual drop in their property taxes from 2007 amounts.

Rep. Morrie Lanning, R-Moorhead, who sits on the Taxes Committee, said Monday that "no Republican" in the House supports the income tax increase and that even if other revenues could be found, the property tax portion was "unaffordable and unsustainable."

The massive bill also would:

• Shield disabled veterans from property taxes, allowing those who are totally disabled to exclude up to $300,000 of their home's market value from taxation. The benefit would carry over to a spouse after the veteran's death.

• Eliminate the provisions that give tax breaks to companies with foreign operations.

• Increase the maximum renter's property tax refund by 6 percent, topping out at $1,500. Income eligibility would increase as well, to $60,000 from $50,160.

The Taxes Committee is scheduled to take public testimony on the bill today and a floor vote is expected later this week or early next week.

Patricia Lopez • 651-222-1288 • plopez@startribune.com