DFL-led House OKs shift in tax burden

A bill that would lower property taxes for homeowners and farmers while raising income taxes on the state's wealthiest citizens passed the DFL-led Minnesota House Friday on a 74-59 vote.

The last of the House's big budget bills, Friday's is also the most controversial, built around a $452 million income tax hike that Gov. Tim Pawlenty has vowed to veto.

"This bill is dead on arrival," said Minority Leader Marty Seifert, R-Marshall, holding up a mock death certificate just before every Republican voted against the bill, along with 11 DFLers. "We're arguing about a tax increase that's never going to happen."

But House DFLers said it was the state's middle-class families who have been paying the price under Republican rule and vowed to press on.

"We're not a rubber stamp for the governor," said Majority Leader Tony Sertich, DFL-Chisholm.

"The people are clearly asking for property tax reductions," Sertich said. "They're demanding it. This plan is bold, meaningful and balanced in every corner of the state."

At the crux of the DFL argument is a growing imbalance in the percentage of taxes paid by middle-class earners (12.3 percent) vs. high-income earners (9.6 percent). Those at the top still pay a large portion of total taxes as measured in dollars, but DFLers maintain that fairness requires similar percentages.

"This bill is about tax reform and tax fairness," said Rep. Melissa Hortman, DFL-Brooklyn Park. Without it, she noted, property taxes would continue to rise.

The bill would offer a property tax refund to virtually every homeowner in the state -- anyone whose property tax is more than two percent of his or her income -- and would cut 2008 property taxes by an average of 3.6 percent.

Wealthy would pay more

Picking up the tab for a round of property tax cuts would be the state's highest wage earners.

Net income above $400,000 for joint filers would be subjected to a new top tax rate of 9 percent. DFLers have said 80 percent of the tax would be paid by those who net more than $1 million a year.

"The robbers are here," Seifert said. Ticking off some of the wealthier districts that also flipped from red to blue in the last election, Seifert said, "They're robbing Minnetonka, Woodbury, North Oaks, Rochester." Freshmen DFLers in those four districts all voted against the bill on Friday, with 11 DFLers in all joining 48 House Republicans. The 49th Republican, Steve Gottwalt of St. Cloud, was absent.

Republicans had planned to offer as many as 88 amendments to the bill in a debate that was expected to drag on throughout the night.

Instead, they spent several hours criticizing the bill, which would raise income taxes by more than $450 million at a time when, they said, the state has a projected surplus of $2.2 billion.

"The tax box, which was under lock and key, was opened up when the DFL became the majority in the House and Senate," said Rep. Steve Sviggum, R-Kenyon, the former House speaker. "Watch out."

Surplus size disputed

During his morning radio show, Pawlenty said his position on tax increases remains unchanged. "We didn't raise taxes when we had a huge deficit," he said. "I don't know why we'd do it now, when we have a surplus."

The amount of actual surplus has been in dispute since it was announced, with DFLers insisting it consists mostly of one-time money and a mere inflationary increase that the state is, by law, not allowed to count in its budget forecasts.

DFLers also disputed GOP assertions that the 9.8 percent increase in spending proposed by Pawlenty should suffice.

"Quit misleading people," said Rep. Al Juhnke, DFL-Willmar, pointing out that Pawlenty himself had pegged his spending at 9.2 percent when he proposed his budget in February. Once one-time money in that proposal was removed, Juhnke said, the figure "goes to down to 1.9 percent per year -- less than the current cost of living."

Rep. Scott Kranz, DFL-Blaine, said he was weary of Republican "trickle-down" economics that he said prized the interests of the wealthy above everyone else.

The tax bill, he said, represented "trickle-up" economics. "If we put more money in the pockets of middle-class consumers, our businesses could expand," Kranz said. "It could help small business."

The DFL-led Senate would also raise income taxes on top earners but would use the revenue for education.

Without a compromise that the governor can sign or an override that would require Republican support, DFLers in both bodies would have to reduce their spending, jeopardizing their goals on education and property taxes.

Sertich said compromise is not impossible, noting that when a stalemate two years ago resulted in a government shutdown, Pawlenty produced new revenue in the form of a "health impact fee" on cigarettes.

"You only have to change one letter to get from health impact fee to wealth impact fee," Sertich said, smiling.

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