Gov. Tim Pawlenty's revised budget proposal predictably includes a federally financed partial reprieve for originally planned whacking of higher education and other vital public investments. But the straitjacket is still on in opposition to more and fairer revenues to address a historic budget crisis, a problem that actually got a lot worse since the first budget proposal.

This is particularly vexing because the story of the month is a blue-chip report documenting a fast-growing unfairness in Minnesota's tax system, to go along with the chronic insufficiency.

So before the anti-government types break out in noisy anti-tax protests in April and May, let's just declare March to have been "Tax Fairness Awareness Month."

We can thank for this awareness two suburban legislators named Ann, who also happen to be two of the brightest bulbs in the Capitol Complex. And those lawmakers, in turn, can thank the 2009 Minnesota Tax Incidence Study, a highly regarded biennial report from the state Revenue Department, showing who pays how much, from top to bottom, in Minnesota state-and-local taxes. The report is generally considered a model and unique among the states for its comprehensive picture of all state and local taxes, including sales and property taxes, and not just the state income tax.

An essential truth about state-local taxes
The report has long told an essential truth about the regressivity of state-local taxes in general:  that they bear more heavily on those in the middle and bottom than those at the very highest income levels. In Minnesota in 2006, those at the top 1 percent, or making more than $448,000, paid just 9 percent of that income in total state-local taxes. Those in the top 10 percent, making more than $124,000, paid 10 percent. On average, the 90 percent of Minnesotans whose income fell under $124,000, paid a 12 percent "effective tax rate."

That gap has been widening during the last decade, which has been dominated fiscally by large state income cuts, deep cuts in budgets for our schools and local governments and an anti-government, anti-tax, no-new-(state)-taxes orthodoxy. Between 2004 and 2006, the numerical "suits index,'' which is used to measure the "incidence" of the effective tax rate, more than doubled.

In the report's wake, Sen. Ann Rest, of New Hope, and Rep. Ann Lenczewski, of Bloomington, each rolled out far-reaching proposals that would overhaul the tax system in revenue-neutral ways that would bring a greater degree of fairness, modernity and stability to the system. Each bill could also be tweaked later to provide more actual revenue for our $6.2 billion projected state revenue shortfall.

Rest's bill provides for steep corporate tax cut rates, which are regressive and passed on to consumers, and a modest increase in the top bracket of the state income tax, a long overdue adjustment following the steep rate reductions in 1999 and 2000, from which our public budgets have never recovered. Rest is a senior member of the Senate Tax Committee and widely considered one of the most knowledgeable and educated members (four master's degrees helps that reputation), and the Star Tribune aptly described the proposal as "all mavericky."

Goodbye to exemptions, deductions
House Tax Committee Chair Lenczewski, an admitted super wonk on taxes, proposed a wholesale abolishing of tax exemptions and deductions that dramatically favor top incomes and lowers income tax rates for those in the bottom two rate brackets, or those making less than about $130,000. Overall, it is calculated to raise slightly the total percentage of state-local tax obligation paid by those who make more than $100,000 and reduce the amount paid by those who earn less than $100,000.

Both proposals reflect the growing consensus that Minnesota's tax system needs to be updated, needs to reflect the evolution to a service economy, and needs a thorough cleaning of the multitude of exemptions and "tax expenditures" that have crept in since the last big reforms in the 1980s.

At Growth & Justice, we have long favored the option of revenue-neutral tax overhauls that reduce business taxes and increase personal income taxes, especially at the top tiers. We applaud the work of the two Anns and for their efforts to set the stage for the discussion of tax fairness at the State Capitol in the coming weeks.

Dane Smith is the president of Growth & Justice. The nonpartisan think tank describes itself as an advocate for fair taxation and smart public investment.