Are DFL’s tax bills DOA? History — and early reaction — suggests they might be

Every election, voters claim they want “reform.”

And in every campaign, pols promise they will deliver reform.

So what happens?

Presentation of tax bills by the House (on Monday) and the Senate (today) are becoming case studies on why it’s so very difficult to create the kinds of reform that everyone says they want.

Start with the House tax bill, which was unveiled Monday morning by Rep. Ann Lenczewski, DFL-Bloomington, chair of the tax committee.

Tax bill embodies ‘reform’ efforts
This is a document that is loaded with “reform”: It cuts loopholes for the wealthiest. It tries to help out the poorest.  It adds a fourth tier to the state income tax. It raises taxes on smokers and drinkers, which is easy to do. But it also goes after sacred cows, by doing such things as putting a cap on home mortgage deductions.

If it’s meaningful reform of the current system you want, this is the bill for you. There’s even a way for counties to come up with more revenue by creating a half-cent sales tax that would both produce money for the counties and lower costs for the state.

But Lenczewski knew what would happen even as the 63-page summary of the bill was being distributed to members of her committee and a roomful of lobbyists.

“We know critics will step forward,” she said. “There’s ammunition for folks looking for it.”

She took a deep breath and asked everyone in the room to look “at the big picture.”

No chance. Everyone was looking at small pictures – and often not liking what they saw.

But, for the sake of history, look at the big picture that the DFL-controlled tax committee wants people to see. The bill would create $1.5 billion in new revenue as the state tries to fill a $4.6 billion deficit.

This bill would create a fourth income tax tier, for Minnesota’s wealthiest. A married couple with an income of more than $300,000 would pay at a 9 percent rate, which would create $467 million in new revenue in the next biennium. In addition, the cigarette tax would be raised by 54 cents a pack (to the current Wisconsin level), which would generate another $187 million. The tax on a glass of wine or a shot of whiskey would go up about 3 cents, creating $209 million.

The bill has been carefully thought out, with progressivity and fairness in mind. Hours have been spent on all sorts of details. It covers everything from credits for small companies doing research and development to a change in the way farmers collect money on mandated bovine tuberculosis testing. (Corporate farmers would receive a grant equaling 25 percent of the expenses incurred in a calendar year. Other farmers would receive a grant covering 50 percent of the costs incurred.)

Hard work, dim prospects
Oh, so much hard, thoughtful work.

And it’s got no shot.

Forget the problems the House tax plan has with Republicans who have come united to St. Paul under Gov. Pawlenty’s no-new-taxes banner, the House bill won’t even pass muster with the Senate’s tax plan, which is being unveiled today.

Rep. Ann Lenczewski
Rep. Ann Lenczewski

Why work so hard on something that’s got no chance?

“You want people to think about the ideas,” said an exhausted-looking Lenczewski.

Rep. Paul Marquart, DFL-Dilworth, the creator of the ideas surrounding county sales taxes, also was asked about the futility of so painstakingly putting together a plan that seemingly has no chance of going anywhere.

“You learn to live with it,” he said. “That’s how it works around here.”

Republican opposition to a bill that calls for tax increases is fully expected. Unlike a year ago, when six Republicans did slide over and help DFLers override Gov. Tim Pawlenty’s veto of a gasoline tax increase, it will be much harder to get the three Republicans needed to overcome any veto of bills like the one proposed Monday — and that assumes that all DFLers will hold firm for the package.

Last year’s transportation bill provided real, definable fixes for needed roads in the districts of the Republicans who joined up with the DFLers. In fact, Rep. Jim Abeler, one of the “Override Six,” was able to point out that people were dying on a bad section of road in his Anoka-area district.

A general tax increase, though, isn’t so specific or easy to sell.

But it isn’t just Republicans who have difficulties with some of the reforms in the bill. For example, one section calls for a sales tax to be charged when people sell their used boats, ATVs or snowmobiles. Currently, there’s a sales tax on such pre-owned gear only if it’s sold through a dealer.

Rep. David Dill, DFL-Crane Lake, finds such a tax very un-Minnesotan.

“This bill is not going to get enacted,” Dill said. “We’re the state of lakes and trails!”

Rep. Joe Mullery, DFL-Minneapolis, shook his head when he heard Dill’s complaint.

“We tax if you sell a used car to your neighbor, why shouldn’t we tax if you sell a used boat,” said Mullery, who came up with the idea to add the recreational items to the sales tax list. “I need a car. I don’t need a boat. Maybe there’s one exception we can add. If you live on an island, you need a boat. We can give people who live on an island an exclusion from the sales tax.”

One example of why change is hard

But Dill’s reaction to a few lines of a massive bill pounds home the point of how it’s virtually impossible to create reform.

Republicans, meanwhile, have bigger concerns. Rep. Kurt Zellers, R-Maple Grove, was placing little stickers on each of the pages of the summary of the bill to note his objections.

“This goes after the wrong people,” said Zellers. “. . . . It’s even got an iPod tax. (There would be a sales tax on digital products, currently exempt from taxing.) Tell you this, you put on an iPod tax and you will get kids who don’t care about politics involved.”

So what happens next?

In coming days, amendments will be loaded up on both the House and Senate bills. Then, somehow, the House and Senate majorities will have to come together with a single bill, which almost certainly will be vetoed by the governor, who has pledged no new taxes.

The May 18 deadline will loom ever larger. And talk of real reform likely will be put away until the next campaign.

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

Comments (12)

  1. Submitted by Kyle Edwards on 04/21/2009 - 10:49 am.

    I’m one of those “kids” Zellers is talking about, and I’d much rather see a sales tax enacted on ipods than cut state health care and higher education.

  2. Submitted by Thomas Swift on 04/21/2009 - 10:52 am.

    It will come as no surprise that the idea of a boatload of new taxes being sold as “change” by Democrats caused an explosive, caffinated nasal evacuation among fiscal conservatives; but Democrats might be surprised by our reaction to the Governors game plan.

    No new taxes is great; but it is not an ala carte item.

    The Mae & Mac mortgage disaster, along with the accompanying economy-wide fallout, has presented thoughtful fiscal conservatives with a once in a lifetime opportunity to push for a top to bottom audit of government services that would do much to reinvigorate the country, and the economy.

    The time is ripe for weeding out waste and unnecessary programs and bureaucracies, when even the most dedicated supporters of big government might hesitate to argue the merits of the status quo before a public that is struggling to keep the lights on at home.

    Unfortunately, Governor Pawlenty has opted for dessert and skipped dinner.

    Where are the reports from the Governor’s office shedding light on what really happens to the billions that have been, and will be disbursed under the misleading heading of “public education”? Where are the lists of government agencies and departments that are providing services in duplicate, and triplicate that *we know* are there?

    We are hard pressed, and not a little disturbed, to find ourselves being offered the opportunity to defend a plan that in all honesty, is simply not defensible.

    Refuse to raise taxes? Absolutely; indeed why not cut? But let’s put the pork we’re going to carve off Big Government’s bloated gut on the picnic table for all to see.

    There has been much talk about the Governor’s ambitions for higher office, but if he did not take a lesson from John McCain and Norm Coleman’s utter failure to garner the support of fiscally (or socially) conservative Republicans I suggest he settle for a nice re-decoration of the office he occupies right now to suit his tastes for the next four years….if he’s lucky.

  3. Submitted by Gregory Stricherz on 04/21/2009 - 11:47 am.

    “The bill has been carefully thought out, with progressivity and fairness in mind.”

    The two “sin” taxes will raise more money than the new upper-level income tax bracket. Since most smokers are lower income earners, where’s the progressivity? When the DFL can come up with a truly progressive income tax, the only fair tax, I will support their efforts. As long as they don’t have the guts to push for a truly fair tax, I will not. I might mention that I’m almost 70 years old, have smoked for almost 50 years, and am in better health than almost anyone my age—no medicines at all except a daily aspirin. And a daily glass of wine.

  4. Submitted by Bernice Vetsch on 04/21/2009 - 12:14 pm.

    Gregory S: I agree that DFL legislators should FIGHT for truly progressive taxation.

    One thing that might help it pass is to forbid secret negotiations between the governor and legislative leaders. We deserve to hear every moment of the discussion. (It IS our money.)

    Let the governor explain in clear language while Minnesotans who are taxpayers and hungry and homeless and sick and disabled and uninsured and to become uninsured when he cuts MinnCare and unemployed … et cetera, et cetera … why it is that their needs mean nothing when it comes to displeasing the creator of the anti-tax movement and the infamous “Taxpayer Protection Pledge,” the gov’s hero, Grover Norquist.

    Why aren’t we rioting in the streets?

  5. Submitted by Andrew Kearney on 04/21/2009 - 12:59 pm.

    Thomas Swift says “we know” that there is duplication and waste? Who is we and how do they know? It’s a sound bit based ion myth. Republicans have been in control of the country since 1980 in one form or the other and in Minnesota since the end of Governor Perpich’s term. Was that not enough time to reform government, eliminate waste and duplication, slim bureaucracies etc.?

    There are two possibilities. One is that the Republicans have faithfully followed a more simplified lazy, easy way during these years: starve government but don’t lift a finger to reform it. The other possibility is that slimming has occurred and we are down to the bare bones. I think we have a combination of the two.

    In any case we also have a disaster. Because Republicans and conservatives during their quarter century of hegemony have not developed new more efficient ideas and have wasted time on things like Q-Comp (empty of substance; long on sound bites) and tax cuts for the rich we have a government that does not work. They have lost all credibility with the people and the new governance context is now based on liberal ideals.

    Howl to the wolves all you want Mr. Swift. Your people blew a big opportunity and I can sense you know it. You have the right idea. It is time to reorganize Republicans around the idea of sensible limited government and drop all the social fluff and myths of government waste. Your reorganization will be done in the new liberal context of people first and government that works just as Democrats had to reorganize under your hegemony by borrowing from it. Good luck and see you in 25 years.

  6. Submitted by Ron Gotzman on 04/21/2009 - 01:38 pm.

    After months of “listening”, the DFL finally have come up with two proposals. However, they have fallen into the typical DFL politics as usual; raise taxes. So much for change?

  7. Submitted by ellen wolfson on 04/21/2009 - 02:02 pm.

    Nice to know that the house has the courage to tell it like it is. When will we learn that nothing is free?

  8. Submitted by Gail O'Hare on 04/21/2009 - 02:48 pm.

    My husband and I are committed progressives who have contributed for decades to the DFL and Green parties, specific candidates, and progressive organizations. We have been dependably generous to a range of charities; those monthly checks are part of our budget.

    But we can’t do that anymore. We have to pay for cigarettes. First, Pawlenty and the Legislature raided the Tobacco Settlement Fund to balance his no-taxes budget. Cigarette prices skyrocketed. Then Pawlenty attached a 75-cent “health fee” – again to balance the budget, not dedicated to health. Just this session, Congress passed SCHIP – a wonderful program – and raised cigarette taxes to pay for it.

    These taxes have hurt us in a time when our savings have been halved by the economic crash. So we will donate no more money to charity – our charity has been chosen for us. As members of MPR for nearly 30 years, we’ve stopped contributing. We won’t renew our tickets to the MN Opera or attend single performances of concerts and plays. Dinners out, local bakeries and coffee shops, new clothes – all out of the question.

    We are heavily taxed because we became addicted as teenagers to a legal substance that was actually subsidized by our government not so long ago. Like Gregory above, we are healthy, fit, a burden to no one. But we have become pariahs, a favorite target. Why not tax pricy groceries and all high-fat food? Why not tax clothing above a certain amount – say $150?
    Heck no, let’s make smokers balance our budget.

  9. Submitted by Francis Ferrell on 04/21/2009 - 03:09 pm.

    The present way to achieve tax reformation is pitted with convoluted potholes and inane selfishness. Using the principle of Occam’s Razor in its modern edited version; “…With all things[or problems] being equal, [a]complex problem[s] can be solved with the simplest solution [or common denominator].”

    1] MN Income taxes can be tiered so that the more you earn, the more tax you pay. Thus, as Warren Buffet and Bill Gates have said and championed, the wealthiest can pay their fair or equitable share of taxation.

    2] The MN state sales tax should be set at 7% across the board. With the exception of food and clothing, all hard goods and/or commodities; some definable services; and consumer goods etc would be subject to sales tax. Exceptions should be limited to life sustenance, medicines, and health care.

    3] All MN monies collected for license fees, vehicle licenses, and fees for state services[i.e. DNR Parks etc] shall go to the department or agencies collecting such fees. The General Fund would take these monies for other allocations or uses.

    4] In times of economic crises, shortfalls, or emergencies a capital reserve fund is set up with $1[one]Billion in capital cash reserves. This fund should be drawing market rate interest. The fund is not to be touched unless a crisis exist! Any interest accrued or built up on the principle can be used as bonding collateral.

    5] Social services, general assistance, and health care etc. to be revamped or restructured to be accountable to the state treasury for every penny spent. Minnesota citizens/residents shall have priority to services in times of need. Minnesota should align and/or restrict its assistance guidelines, like neighboring states, to Minnesotans only to avoid the constant influx of out-of-staters who seem to migrate toward liberal assistance venues.

    With a balanced and streamlined efficient state budget Minnesota can go progress forward and be a better state for all.

  10. Submitted by Eric Ferguson on 04/21/2009 - 04:07 pm.

    I think I see the point of what Doug is saying about the House members who drew up this plan. They’ve been over it and over it. Every argument and idea we can come up with, they already came up with.

    Smokers don’t like being taxed more? I don’t like losing the mortgage interest deduction. If I was upper income I wouldn’t like paying more income tax. I’ll bet no one wants to pay a local sales tax.

    But you know what? It’s time we get over our persecution complexes. It’s time to recognize the state has a crisis, and everybody thinks the tax increases — and, let’s not forget, the budget cuts — that affect them are unfair. We’re in the same used newly sales-taxed boat, so let’s quit whining and help row.

  11. Submitted by Dave Kopesky on 04/21/2009 - 04:26 pm.

    Politics as usual. The DFL spends the whole session coming up with budget and tax proposals that are going to be DOA without the votes to override. The Governor tries to put much of the problem off into the next biennium again with gimmicks and shifts plus drastic cuts to health and welfare spending. Then we get to watch the two parties play chicken leading up to July 1st. Is it any wonder a significant number of voters long for a real third party. What ever happened to compromise??

  12. Submitted by Grace Kelly on 04/21/2009 - 06:55 pm.

    Gosh, it is so easy to write a negative dead-on-arrival story. Why would anyone call this reporting, it is a propaganda piece for defend-the-rich Republicans.

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