DFL's property-tax plan could cost you

Many people would end up paying more. The governor has a better idea.

By WARD EINESS

Last update: May 3, 2008 - 4:20 PM

Rather than trying to correct the flaws in their highly touted and frequently misrepresented plan to reform the state's property-tax system, House DFL legislators would be better off considering another approach: Scrap the entire proposal and instead work with the governor on a plan to provide property-tax protection to all Minnesota homeowners.

Their plan relies on an elimination of the deduction for real and personal property taxes. Doing so would make Minnesota one of only a handful of states without this type of deduction. This proposed tax expansion would result in a state income-tax increase for more than 800,000 Minnesotans.

Another feature of the DFL plan would phase out the Homestead Market Value Credit and replace it with a revised property-tax refund.

A Department of Revenue analysis indicates that if the plan were fully phased in, more homeowners would pay higher taxes than under the current structure. Specifically, 945,000 Minnesotans would pay more -- including nearly 500,000 with household incomes of less than $75,000. DFL legislators now propose a "fix" to adjust the imbalance, but losers would still substantially outnumber winners after the first year.

House DFL tax chair Ann Lenczewski says she wants to restore fairness to tax preferences and make the system more progressive by redistributing tax burdens based on income and ability to pay. But actions speak louder than words. This year her tax committee approved a gas-tax increase, a motor vehicle registration tax increase, a metro-area sales tax increase, a 20 percent increase in the corporate income tax and authorization for additional local sales-tax increases -- all regressive in nature.

Gov. Tim Pawlenty has proposed the only real solution that has passed the test of time: property-tax caps. Levy limits have enjoyed bipartisan support for 26 of the past 35 years and were credited as a key component of the Minnesota Miracle. The governor's proposal to cap property taxes would save taxpayers an estimated $128 million in 2009, with 60 percent of those savings going directly to homeowners. Local governments could still raise taxes beyond the caps, but not without direct approval from voters.

Another important consideration is tax relief for businesses. Small businesses are the backbone of Minnesota's economy, providing the vast majority of new jobs, but some might think the Legislature is trying to break their backs. A new study by the Small Business & Entrepreneurship Council ranks the states from best to worst in terms of the costs of their tax systems. Minnesota ranked 49, down from its previous position of a lowly 45.

We in the administration hope the Legislature will work with us this session to deliver meaningful tax relief. The governor's proposal takes the guesswork out of the debate while offering much-needed relief to businesses and homeowners alike.

Ward Einess is Minnesota's revenue commissioner.

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