State's proposed 9.7% top tax rate may lead nation

  • Article by: PATRICIA LOPEZ , Star Tribune
  • Updated: March 30, 2007 - 9:54 PM

The DFL-led Senate is ready to vote on a plan that puts a 9.7 percent income tax on the state's top earners. Republicans are aghast.

The Minnesota Senate is poised to vote today on a nearly $1 billion income tax increase that could make Minnesota's top income tax rate the highest in the nation.

After days of wrangling over options, Senate DFLers on Friday proposed a tax rate of 9.7 percent on Minnesotans with the highest incomes. It would affect about 90,000 taxpayers and impose an average increase of $4,340. Currently, Minnesota's top income tax rate is 7.85 percent.

Sen. Majority Leader Larry Pogemiller, DFL-Minneapolis, said the proposed tax hike would pay for long overdue "strategic investments" in K-12 schools, early learning and tuition relief. He said it also would restore fairness to a tax system that he said had grown out of whack, with tax burdens that fell too heavily on the middle class.

"It's a myth that investment hurts our economic future," said Pogemiller, lead proponent of the top tax rate proposal. Senate Republicans excoriated DFLers on Friday for the latest in a series of proposed tax hikes.

"They are the slow trickle of death for our economy," said Sen. Julianne Ortman, R-Chanhassen. "We can't expect the private sector to pay for this unsustainable budget."

Vermont has the highest top-income tax rate now, at 9.5 percent. California follows with a top rate of 9.3 percent, but it also imposes a special 1 percent surtax on incomes over $1 million to fund mental health programs.

The income tax proposal came on a day when the Senate also gave preliminary approval to an overall tax bill that boosts statewide business property taxes and would collect more from corporations with foreign operations. That bill also provides $376 million in property tax relief, much of it in the form of increased aid to cities, counties and school districts.

Republicans complained about that too, calling it phony relief.

"This is hocus-pocus," said Sen. Dick Day, R-Owatonna. "It's not real tax relief."

Republicans and DFLers have long differed on whether local aid really lowers property tax bills for homeowners. Senate DFLers contend their package will lower homeowner taxes by 5.8 percent.

From the Senate floor, Ortman implored Gov. Tim Pawlenty to fend off tax increases.

"Governor, I hope you'll protect the taxpayers of Minnesota," she said. "Minnesota's in trouble. I'm worried and frightened for our state."

The $992 million raised by the DFL plan would fund big boosts for K-12 schools, early learning, tuition relief and restoring aid to local governments to 2003 levels. For some cities, that will mean increases of 1,000 percent or more from this year's aid. Hopkins, which saw its aid fall to $50,000 this year, would get more than $1 million under the Senate proposal.

Even wealthy cities would get a taste. Wayzata would get $41,000 -- a 75 percent boost over this year.

Despite the promise of a gubernatorial veto, Senate Taxes Chairman Tom Bakk, DFL-Cook, said Senate DFLers would persevere. "The true measure of a fair tax system is whether everyone pays their share," he said. According to a recent state Revenue Department study, those with the highest incomes pay a smaller proportion of their income in state taxes than do the middle-range earners.

The DFL-led House also hopes to boost income taxes, but would limit their increase to a top rate of 9 percent that they say would mostly affect those with incomes above $1 million.

"We absolutely respect the Senate's right to make a decision that might be different from ours," said House Speaker Margaret Anderson Kelliher, DFL-Minneapolis. "But we think our plan makes a lot of sense. We stand by our plan right now."

Kelliher said there were other differences between the House and Senate tax plans. The House plan offers $535 million in tax relief, compared to $376 million in the Senate proposal. The House plan also does not include a statewide business property tax increase.

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