Minnesota Senate leaders on Tuesday proposed a plan to raise more than $1.8 billion through tax increases on income, business property and tobacco, setting up an uncomfortable vote for some of their fellow Democrats from swing districts.
The Senate plan would tap a much bigger pool of taxpayers to close a projected budget deficit and fund spending increases than plans put forth by Gov. Mark Dayton and the House Democrats. An estimated 200,000 filers — or 7.6 percent — would pay a higher income tax, averaging $2,300 per return. The state's top rate would rise from the current 7.85 percent to 9.4 percent on taxable income of more than $140,960 for married couples and $79,730 for individuals.
Dayton and the House Democrats would foist the higher tax burden on only the top 1 or 2 percent of earners. Dayton has proposed a new 9.85 percent tax rate on income above $250,000 for married couples and $150,000 for single filers. The Democratic-led House has proposed a new 8.49 percent rate on income of more than at $400,000 for couples and $226,000 for individuals. It also would tack a 4 percentage point surcharge on incomes above $500,000.
Minnesota is facing a projected budget deficit of $627 million, and Democrats want to boost spending on education, from pre-school through college, and put more money toward programs they consider vital to the state's future economic success.
Legislative veterans, such as Senate Majority Leader Tom Bakk, say new taxes are the key component.
"It's always serious business when you ask someone to pay additional taxes. That's a tough vote to take. It's always easier to vote no," said Bakk, DFL-Cook. "Last November's election told me people don't want a budget made of gimmicks and accounting shifts and borrowing. They want an honest budget."
Democrats have 39 of the 67 Senate seats, but Bakk conceded that his caucus won't be unified.
Freshman Sen. Melissa Franzen, an Edina Democrat with a business background, said the bill "is going to be a hard one for me to support." She's worried about proposed tax increases on business property and how the income tax would affect families in her area.
Fellow suburban Democratic Sen. Terri Bonoff of Minnetonka, who has opposed past efforts to raise top-end income tax rates, declined to say whether she would vote for the bill. Bonoff said she likes aspects of the bill bringing more stability to the sales tax but is not enthusiastic about the income or property tax changes.
A showdown vote is set for Monday rather than an initial plan for a Saturday debate, which would have coincided with an anti-tax rally led by Grover Norquist, the head of the anti-tax group Americans for Tax Reform.
Other portions of the Senate tax plan would:
— Beef of aid programs to local governments and for property tax relief accounts.
— Broaden the sales tax rate to cover clothing, a range of currently exempt consumer services, digital downloads, and some business transactions while dropping the state's sales tax to 6 percent — almost a full percentage point less than it is now. Many people would qualify for a "clothing sales tax credit."
Page 2 of 2 - — Impose a new 13 percent tax on sports memorabilia — such as jerseys, trading cards and bobbleheads — to foster youth sports and, some anticipate, shore up a weak financing plan for the impending Minnesota Vikings stadium.
— Cut the corporate tax rate and lift the sales tax on capital equipment purchases by companies.
— Provide tax breaks or aid to the Mayo Clinic, 3M Co., Baxter Healthcare Group, the Mall of America and other major planning to launch significant business expansions in the state.
Republicans were quick to criticize the Senate plan, which Senate Minority Leader David Hann labeled "shameful" and "excessive."
Sen. Julianne Ortmann, R-Chanhassen, said the plan hits too many people who are more middle class than wealthy.
"To the extent that this is an effort to tax the rich, this is not it," she said. "This is a failure."
Some Democrats from competitive districts declined to say whether they'll support the plan, but others said they are inclined to back it.
First-term Sen. Greg Clausen, DFL-Apple Valley, said the added revenue would allow for a noticeable infusion for schools, which have spent years scraping by or leaning on local tax levies. In Clausen's district, which he classified as upper middle-class, the higher income tax would no doubt be felt.
"There certainly are people out there about 'No New Taxes.' Whenever they see the word 'tax' they do not support that," Clausen said. "There are also people who recognize we have needs in our state, needs that will support us going forward and will support economic growth."
In freshman Sen. Kent Eken's northwestern Minnesota district, he expects few people would face the new top tax rate. Eken, DFL-Twin Valley, said the vote is "politically easy" for him because the package puts more money into programs aimed at holding down property taxes.
"Property taxes hit our area much harder," Eken said. "This bill would shift the burden now away from those taxes."
The House bill is headed for a floor vote Wednesday. It would raise about $2.6 billion in taxes, including the first increase in alcohol taxes since 1987.
The differences in House and Senate proposals mean the exact shape of a new tax code won't be known until mid-May.