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Senate bill ups nearly all income taxes

ST. PAUL -- Most Minnesotans' income taxes would rise under Senate Democrats' solution to the state budget deficit.

Combined with budget cuts and the use of federal economic stimulus money, the $2.2 billion tax increase would help fill what otherwise would be a $6.4 billion deficit in the two-year budget beginning July 1.

The tax plan unveiled Tuesday would raise taxes on all but 15.5 percent of Minnesota's 2 million taxpayers, Senate Tax Chairman Tom Bakk, DFL-Cook, said.

A married couple with two children and a $90,000 annual income would pay $400 a year more.

The plan, due for a committee vote today, would increase all brackets of income tax and add a new bracket for people making more than $250,000. Those Minnesotans would pay 9.25 percent of their salaries to the state, the third highest rate in the country.

Tuesday's announcement sets up a three-way battle with the House and Gov. Tim Pawlenty.

The House, like the Senate controlled by Democratic-Farmer-Laborites, on Monday began looking at a plan that keeps all income taxes the same except on couples who earn more than $300,000 or single taxpayers who earn about half of that. They would pay 9 percent of their income in taxes.

The House bill, which also would raise tobacco and alcohol taxes, passed out of the Taxes Committee 16-14, over objections of two northeastern Minnesota lawmakers.

They wanted to strip out alcohol and tobacco taxes, along with a sales tax the measure would impose on used all-terrain vehicles and snowmobiles. The bill also eliminates some tax breaks given to people buying homes.

Almost all of the Senate's tax increase is in the income tax. The House's $1.5 billion increase comes from a variety of taxes.

Once legislators figure out their final tax bill, they need to talk to Republican Pawlenty, who continues to say he will not accept a state tax increase.

If the government takes money away from taxpayers, they cannot spend it, she added, which would slow an economic recovery.

Bakk said the richest 80,000 taxpayers would pay 40 percent of the new taxes under his bill.

The Senate plan raises the lowest income tax rate from 5.3 percent to 6 percent. Middle-income Minnesotans now pay 7.05 percent of their income in taxes, but under the Senate plan it would rise to 7.7 percent. The former upper bracket taxpayers' rates rise from 7.85 percent to 8.5 percent.

The Senate's proposed tax increases would run through 2013.

Davis works for Forum Communications Co., which owns the Daily Globe.

Don Davis
Don Davis has been the Forum Communications Minnesota Capitol Bureau chief since 2001, covering state government and politics for two dozen newspapers in the state. Don also blogs at Capital Chatter on Areavoices.