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House DFL tax plan targets top earners, smokers, drinkers

MinnPost file photo by James Nord
House Speaker Paul Thissen and House Majority Leader Erin Murphy went to great pains to try to minimize what are certain to be GOP charges that the income tax rates would make Minnesota businesses non-competitive.

House DFLers revealed their tax bill Monday, but before the rich, the smokers and the drinkers begin to moan too loudly, a word of caution:

This bill is dramatically different from one that is being worked up in by Senate DFLers and is different from the grand tax plans of Gov. Mark Dayton.

In other words, tax policy debates are just warming up.

The only sure thing is that taxes will go up. What’s not clear is which taxes will end up higher when the session is over and the budget is balanced.

As expected, House DFLers are proposing a fourth income-tax tier, a rate of 8.49 percent on couples who have a taxable income of more than $400,000. But, in addition, the House plan would tack a two-year 4 percent surcharge on the wealthiest group to pay back the $854 million owed to schools.

The fourth tier — and surcharge — would affect just 1.1 percent of the state’s wealthiest, according to House Speaker Paul Thissen. About 27,000 Minnesotans would end up paying $3,700 more a year than under the current plan.

Thissen and House Majority Leader Erin Murphy went to great pains to try to minimize what are certain to be GOP charges that the income tax rates would make Minnesota businesses non-competitive.

Yes, Thissen and Murphy said, that with the surcharge, the Minnesota rate would be the third-highest in the country. But when the surcharge “blinks off,” the ranking would fall to 12th.

Murphy simply described the income tax portion of the House plan as “a more fair system that asks the wealthiest to chip in a little more.’’

The fourth tier is a given among the House, Senate and governor. But rates differ, as does the income level that would be subject to a new top rate. But neither the Senate nor the governor have shown any interest in the surtax — and the lofty national ranking that would come with it.

Of course, income taxes on the wealthiest represent only one portion of a tax proposal that Thissen says is how “the DFL lives up to the promises it made’’ during November’s campaigns.

The total package, which raises about $2 billion in new revenue, brings back to a more vibrant life the homestead credit refund, which would give property tax relief to about 1 million Minnesotans, Thissen and Murphy said.

The House bill, however, does not include any of the sales tax changes proposed by Senate leaders who want to both broaden taxable services and lower the rate.

The bill also cuts loopholes that allows corporations to shelter overseas profits and promotes projects at the Mayo Clinic, the Mall of America and 3M with a variety of breaks.

It also raises taxes on cigarettes and alcohol — moves that are apt to cause considerable angst in the populist sector of the DFL.

Thissen tried to minimize the impacts of those taxes, especially on alcohol. Although the tax would be paid at the wholesale level of purchase, the impact for a beer drinker would be roughly 7 cents a glass, Thissen said.

“If you had a beer a day for a year it would equal about 25 bucks,’’ Thissen said.

The fact is, the cigarette and alcohol taxes merely pay back the state for some of its costs that come in the form of health care, prison sentences, car crashes and domestic issues.

Again, trying to defuse the outrage that is sure to come from many quarters, Thissen said there is general agreement among DFLers, Republicans and the business community on some ways to use new revenue: such items as “early-learner’’ programs and college tuition freezes.

“Those are broad Minnesota values,’’ Thissen said, “including among Republicans and the business community. But those things are not free.’’

Anyone not willing to pay for investments should not be taken seriously in the discussion, Thissen said.

Comments (1)

  1. Submitted by Justin Adams on 04/15/2013 - 03:44 pm.

    The fact is…

    “The fact is, the cigarette and alcohol taxes merely pay back the state for some of its costs that come in the form of health care, prison sentences, car crashes and domestic issues.”

    Well, I guess you could say that was a fact. I’d love to see some accounting though…

    Is it not also a fact that the state won a huge settlement from the tobacco companies to cover the increased healthcare costs related to tobacco use in this state? What happened to that settlement again? Tax cuts for high earners, you say? And now a tax that falls most heavily on the poorest minnesotans to help make up the shortfall. I see.

    Isn’t it also a fact that smokers frequently pay higher health insurance premiums than non-smokers, and that smokers have already been paying more for the tax porition of their product than for the product portion of their product for some decades now?

    Isn’t it a fact that smokers have been denied the privilege of smoking in bars or within several hundred feet of their places of employement in this state?

    Prison sentences is an interesting point to bring up – I assume you’re talking about drunk driving? Seems to me an awful lot of drunk drivers aren’t serving time. You know who is serving a lot of time and driving up the cost of prisons? Non-violent drug offenders. Who, I notice, haven’t paid any taxes on their illicit materials because of a misguided and unpragmatic state approach to the drug problems we have here. Couldn’t we maybe regulate and tax the reefer instead, let people who aren’t dangerous out of prison? Couldn’t we say that it’s a fact that these actions would make up most of the budget shortfall while at the same time not punishing poor people for being poor?

    I am not at all convinced that the existing tax on cigarettes is insufficient to cover the externalities of smoking and that cigarette smokers aren’t covering their weight. No. I think the state is gonna stick it to smokers again because it’s well established that smokers can be punished without an electoral consequence.

    These sin taxes are highly regressive. IMO, they should only be used as a specific tool to incentivise behavior – and I know they’re not being used in that way in this case, because a cigarette tax increase large enough to reduce the incidence of smoking is a cigarette tax increase that does not create additional revenue.

    A smaller increase, aimed at getting the same number of smokers to provide more revenue to the state, is nothing but a cost shift from a progressive tax (the income tax) to an extremely regressive one (excise sales taxes).

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