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Cries of ‘Taxes!’ finally echoing through Minnesota’s Capitol corridors

The DFL Senate leadership on Thursday reluctantly announced the foundation of its budget plan to close the state’s $4.6 budget deficit.

The word “taxes,” only whispered for the first weeks of this legislative session, suddenly is being shouted at the state Capitol. “Taxes!”  You can hear the echoes throughout the Capitol corridors. “Taxes!”

The opening of the tax season at the Capitol may have come a little earlier than planned.

DFL Senate leadership on Thursday reluctantly announced the foundation of the budget it wants to use to close the state’s $4.6 budget deficit and counter Gov. Tim Pawlenty’s budget proposal.

The announcement — which calls for $2.4 billion in cuts, including a $973 million cut in K-12 education and $2 billion in “new revenue” — was made because of a bit of media one-upsmanship. Reporter Tom Scheck reported the plan to Minnesota Public Radio listeners before the DFL leaders unveiled the plan to their own caucus.

While Senate Majority Leader Larry Pogemiller and Assistant Majority Leader Tarryl Clark claimed they were trying to find out who leaked the report, they also were quickly calling for a meeting of the DFL caucus to inform caucus members and scheduling a mid-afternoon news conference to announce the plan that had already been announced.

Sen. Larry Pogemiller
Sen. Larry Pogemiller

Pogemiller at center of swirl of rumors
Understand, because Pogemiller is involved, rumors filled the Capitol. Things, even leaks, don’t usually just happen with Pogemiller. They’re caused. So there were a lot of legislators from both parties wondering if the Senate leader might have actually created the leak — in a plausibly deniable way, of course. If so, they wonder, what is his end game?

“Always remember, he’s the maestro,” said one Republican leader who asked for anonymity because of the politically charged environment. “He’s a lot of things. But stupid he isn’t.”

Pogemiller was not available to answer the big leak question Thursday night.

No matter how, or why, the DFL plan got out, Republicans were quick to pounce on it.

Rep. Marty Seifert
Rep. Marty Seifert

“This plan is the worst of both worlds,” Rep. Marty Seifert, the House minority leader from Marshall, was telling anyone who would listen. “They’re raising taxes AND cutting K-12.”

(Under the budget plan Gov. Tim Pawlenty announced a few weeks ago, there were to be budget shifts and long-term borrowing and major budget cuts in some areas but no tax increases, and K-12 was to be held “harmless.” Pawlenty is scheduled to announce a “revised” budget sometime next week.)
DFL progressives unhappy, too
Republicans weren’t alone in being highly critical of the DFL leadership’s first whack at solving the state’s budget problems. The DFL’s most progressive members were at least as upset as Republicans. In fact, their anger might be more sincere.

The plan, progressives said, showed a lack of courage and humanity.

“People in politics are so scared of everything these days,” said Sen. John Marty, DFL-Roseville, a candidate for governor.  ” …. I don’t think the people who elected us really sent us here to compete with the governor on how deep we could cut.”

Marty believes that the DFL must frame the debate in its own terms, not Pawlenty’s.

“My whole thing is that I really like the governor using the idea of people sitting around the kitchen table talking about their budget,” said Marty. “I like the idea of our state as family. But I think Tim Pawlenty ought to listen to how real Minnesota families talk. I don’t think when there’s a crisis that real families push their weakest members out the door.”

Though the DFL plan doesn’t call for as deep of human service cuts as the governor seeks, the cuts are still there.

As for the education cuts seemingly proposed by DFL leadership?

Pogemiller, as great a friend as public education ever has had at the Capitol, has been talking about the need for K-12 cuts for weeks. But most, including DFL House leaders, believe it’s all a ruse. Pogemiller, they say, is expecting Minnesotans will rise up and demand that the state maintain education funding at its current levels and use $650 million in federal money, not as backfill, but as a genuine increase in K-12 spending.

But Sen. Terri Bonoff, DFL-Minnetonka, doubts that.

“The issues we’re facing are too serious for shell games,” she said, adding that the broad proposals made Thursday are just the beginning of a process that’s going to get muddier before it gets clearer.

Leadership still avoiding actual use of word ‘taxes’

Perhaps the most amusing thing about the broad budget outline proposed by the DFL Senate leadership Thursday was the fact leaders still did NOT use the word “tax increases.” Instead, they talked of  $2 billion in “new revenue.”

But tax proposals are beginning to be heard.

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For example, earlier this week, Sen. Ann Rest, DFL-New Hope, made what likely could be the first serious tax proposal.

Part of Rest’s plan was aimed directly at raising revenue. She’s calling for a “fourth tier” for the state income tax code, which she says would affect only 54,000 taxpaying households, in which income of a married couple amounts to more than $250,000. That small group would see an increase of their tax rate from 7.85 per cent to 8.75 per cent, creating $200 million for the starving general fund.

Additionally, Rest is proposing a two-pronged, “revenue-neutral” tax change. She would slowly decrease corporate taxes, which Pawlenty also wants to do. But under Rest’s plan, the state’s sales tax would be broadened to include clothing and such services as fees for attorneys and accountants. At the same time she proposes broadening the sales tax, she would lower the rate from 6.5 percent to either 6 percent, or even 5.5 percent. Low-income people, by the way, would get a credit on the sales tax broadening.

The sales tax broadening has not been greeted warmly by her colleagues.

“People have an emotional attachment to keeping the tax off food and clothing,” she said. “I have it on food.”

The intent of her proposals, she said, is to “rebalance” the system, give it more stability and predictability than it currently has.

But is there “fairness” in her proposal?

Fairness is going to be a huge issue, at least in the next few weeks of this session.

On Wednesday, the House tax committee heard the results of a Tax Incidence Study, a nonpartisan study that has been conducted by the Department of Revenue every two years dating to 1990 on all levels of state and local taxes.

The study is 106 pages long, filled with data and graphs and tries to answer the question: “Who pays Minnesota’s taxes?”

Study showing tax system becoming more regressive
Short form of a long study: The newest study shows that Minnesota’s system is becoming markedly more regressive, meaning the poor and middle class are paying a higher proportion of taxes than the wealthy. The system of all taxes — sales, property, income, etc. — has become markedly more regressive in the last night years.

It also appears that Minnesota, once proud of its progressive heritage, is not what it once was. There are now 10 states less regressive than Minnesota.

Not surprisingly, the study shows that the income tax is the one tax that’s the least regressive. Property and sales taxes are the most regressive.

Minnesota tax impacts by tax area
Courtesy of the state of Minnesota
The property tax share — which declined slightly between 2004 and 2006, is projected to increase substantially in 2011.

(Rest says her proposal, calling for a broadening of the sales tax, will not make that tax more regressive than it already is. She points out that typically, middle- and lower-income people aren’t hiring attorneys and accountants. Additionally, there is her credit for the poor on broadening the sales tax to clothing.)

DFLers clearly plan to use the study as an attack on Pawlenty’s no-new taxes era of governing.

At the very least, said Rep. Ann Leczewski, DFL-Bloomington, chairwoman of the House Tax Committee, the governor is going “to have to own up to it.”

“If he doesn’t want to address it (tax fairness), he needs to admit he’s OK with it,” said Leczewski. “He needs to say that he’s fine with embedded unfairness.”

Leczewski, by the way, says her committee will start taking up tax bills next week. Those bills are sure to get tempers flaring among all players.

Republicans, for the most part, will oppose any new taxes.

But even DFLers will be fighting each other over what sort of taxes are most reasonable.

For example, at some point, Rep. Tom Rukavina, DFL-Virgnia, expects to propose a “progressive income tax surcharge” on all Minnesotans. But he’s ready to get into brawls over what most see as the easiest taxes to increase, the so-called “sin taxes” on alcohol and tobacco products.

“It’s not the smokers and the drinkers who caused this depression,” Rukavina said, adding that the “sin taxes” are the most regressive of all.  (Rukavina is frustrated that he can’t even get a hearing on his one favorite “sin” proposal, which would place electronic pull tab devices in state bars.)

Taxes of all kinds are finally out of the Capitol closets.

“It’s about time we got going,” said Rukavina. “We had a (tax) committee the other day, and I said, ‘Whoever thinks we’re getting out of here without raising some money, raise their hand?’ One guy did, but he was laughing when he did it.”

Doug Grow writes about public affairs, state politics and other topics. He can be reached at dgrow [at] minnpost [dot] com.