Rep. Ann Lenczewski rolled out a tough strategy Wednesday for helping close the state's nearly $1 billion projected budget deficit, bringing a bill before the House tax committee she chairs that would raise millions in revenue by repealing virtually all corporate tax breaks.
Under the bill from Lenczewski, DFL-Bloomington, that would mean no more state tax deductions for foreign operating corporations or foreign royalties, no more tax incentives for research and development work, and no more JOBZ -- the five-year-old program that uses tax-free zones to encourage business development and has been a favorite of Gov. Tim Pawlenty's.
But Lenczewski's bill (HF4103) offers business a dollop of honey, too: It would lower the state's corporate tax rate by one percentage point, from 9.8 to 8.8 percent, and eliminate the corporate alternative minimum tax. She said the idea is to level the playing field for businesses then give something back.
According to state Revenue Department estimates, the bill would add $171 million to the state's general fund in fiscal 2009, $135 million in 2010 and $153 million in 2011.
"It is changing the rules, no question, and that's because we have a billion-dollar deficit," and the governor has taken a tax hike off the table, Lenczewski said.
The initial reaction from Pawlenty's office wasn't promising. "This House DFL bill is an overall tax hike, and it unwisely punishes job providers in an already difficult economy," said Pawlenty spokesman Brian McClung.
Tom Hesse of the Minnesota Chamber of Commerce, which represents thousands of employers across the state, said the chamber was still evaluating the bill. "There are good parts we could support, but there are several provisions we're concerned about," especially the ones removing exemptions for foreign royalties and incentives for research and development, he said.
Panel members swallowed hard at some parts of the bill but also commended Lenczewski for a fresh approach.
Some legislators said they feared the bill would disproportionately hurt rural Minnesota, but Lenczewski said most of the businesses affected are in the metro area.
The bill also would remove the general tax exemption for Metropolitan Airport Commission properties, including the Minneapolis-St. Paul International Airport and the St. Paul Downtown Airport.
Lenczewski said she hoped to take public testimony on the bill early next month. No companion bill has been introduced yet in the Senate.
Kevin Duchschere • 612-673-4455