By Baird Helgeson
The Minnesota House approved $2.1 billion in new taxes on Sunday night, the most sweeping package of new revenue in more than a decade.
House Democrats voted 69-65 to increase income taxes on high earners and impose a dramatic increase on the tobacco tax. The measure also set aside money to pay the state’s share of the new Minnesota Viking stadium and help a multibillion-dollar expansion in Rochester to aid Mayo Clinic.
The additional revenue is a crucial component of DFLers' plan to boost education funding, provide property tax relief and spur economic development. The new proposal also wipes out a $627 million projected deficit.
“We’re proffering massive property tax relief for all Minnesotans, both for cities, counties and school districts, individuals and renters,” said House Taxes Committee Chairwoman Ann Lenczewski, DFL-Bloomington.
Republicans said the tax hikes are an economy killer, and set the state government growth at a rate much higher than in the private sector.
“If somebody says this isn't a job-killing tax bill, then they don't know anything about businesses,” said Rep. Mark Anderson, R-Lake Shore.
Legislators ditched much-criticized proposals to begin charging sales tax on clothing and a separate plan to impose a temporary income tax surcharge on those with a taxable income of more than $500,000 a year. That money was slated to go to speed the repayment of $850 million owned to K-12 public schools. They also scrapped a proposed alcohol tax, which drew intense opposition from the state’s beer and wine industry.
In the closing days, lawmakers reverted to the framework of a plan first offered by DFL Gov. Mark Dayton.
The measure will make the rate the high earners the fifth-highest in the nation, a huge concern for Republicans.
The new budget is a huge political victory for Dayton, who campaigned on a pledge to “tax the rich” and was not able to get the proposal by Republicans who controlled the Legislature two years ago. Dayton finally got his opening when DFLers took over control of the Legislature this year.
The plan creates a new, top income tax tier for married couples who have a taxable income of more than $250,000 a year. Under the plan, the top 2 percent of wage earners will now pay 9.85 percent in state income tax on every dollar over $250,000.
That is a 2 percentage point jump from the current top rate and will put Minnesota’s income tax rate among the top five in the country. Only California, New York, Hawaii and Oregon are higher.
DFLers also ratcheted up the tobacco tax by $1.60-per-pack, more than double the current rate. Democrats were persuaded that the hike will encourage people to quit smoking and prevent children from starting, but it will also create a new windfall to pay for other spending priorities.
Part of the new tobacco revenue will also go to help repay the state’s share of the new Minnesota Vikings stadium. The state’s initial solution of using new revenue from electronic pull-tabs and bingo has fallen profoundly below projections.
Along with the tobacco tax money, the state is using some corporate tax revenue to make up any shortfall left by the electronic gambling revenue. The state needs about $30 million a year to pay its share of the new, nearly $1 billion stadium to be built on the site of the Metrodome.
“This is something we told the taxpayers we would not do, why are we doing it?” asked state Rep. Bob Barrett, R-Lindstrom.
“Minnesotans want to move on and see it built and leave no doubts that all the Vikings needs are met,” Lenczewsi said.
The proposal includes millions in tax breaks for cities and counties, buyers of aircraft parts and the state’s largest craft brewers.
“When you’re voting for this tax increase, you’re not solving the Vikings problem, you’re not paying back the [school] shift, you’re not helping health or human services or the schools that you promised you were going to do,” Rep. Matt Dean, R-Dellwood. “It doesn’t give me any pleasure to say that, but I have to say that because that’s the truth.”
Lenczewski defended the bill, noting that most of the new taxes will fall on the wealthy or on businesses “to whom much has been given” by the state in the past. The exception, she said, was the new tobacco tax.
“I view [the tobacco tax] as a public health imperative,” she said. “That tax does not begin to recoup the cost to all of us for the use of that substance.”
The measure now goes to the Senate for final passage. Dayton helped craft the final tax deal and supports the proposal.
Staff writer Jennifer Brooks contributed to this report.