Rich would fund property tax relief under House plan

ST. PAUL -- House Democrats want to increase income taxes on the 50,000 richest Minnesotans so they can cut property taxes for most homeowners.

The proposal sets up a fourth tier of income taxes for Minnesota couples earning $400,000 or more a year and single filers with $226,000 incomes. They would pay 9 percent of their income in taxes, up from 7.85 percent in the current top tier.

The $433 million gained from the tax increase would be combined with a pair of other revenue-raisers to reduce property taxes in the next two years by $535 million.

"Significant and permanent property tax relief" is how House Speaker Margaret Anderson Kelliher, DFL-Minneapolis, labeled the plan.

Meanwhile, Senate DFLers announced their plans for property tax relief - a $375 million package - which raises property taxes on businesses.

House and Senate plans both would force businesses with overseas operations to pay more tax and would try to get more money out of those who are behind on paying taxes.

The two property tax proposals were released at about the same time Friday, setting up a fight not only between the two DFL-controlled legislative bodies, but especially with Republican Gov. Tim Pawlenty who regularly makes it clear that he will veto any tax increase.

The plans contain some similar provisions, but with different amounts:

E The House would spend $139 million to reduce school levies, while the Senate would fund $75 million.

E Property rebates and market value credits would get $120 million more under the House plan, about double what senators included.

E Senate DFLers increasing aid to cities by $60 million, while the House number is $50 million.

Details of the House plan need to be worked out. Property Tax Chairman Paul Marquart, DFL-Dilworth, said those details will come next Friday. His committee will have enough funds to reduce taxes $535 million.

"Everyone will see relief," Marquart promised homeowners.

Not everyone will pay less next year than this year, he added, because home values may go up and schools may increase levies. However, every homeowner should pay less than what they would without this new money, he added.

Republicans saw the plan differently.

"This is March madness, folks," Rep. Steve Sviggum, R-Kenyon, said. "This is absolute craziness."

Sviggum and many other Republicans favor a one-time property tax rebate.

Sviggum, a former House speaker, said he has no doubt Republicans will stand with Pawlenty and stop the DFL's tax increase.

Before he knew the details, Pawlenty told his weekly radio show audience Friday: "It looks like a legislative Taxapalooza."

The new fourth tier of income tax will be "just about dollar for dollar used for direct and permanent property tax relief," House Ways and Means Chairman Loren Solberg, DFL-Grand Rapids, said.

If local governments don't get more state money, he added, "the only other option is for them to raise the property tax."

About $222 million of the proposed relief for homeowners outlined in Friday's Senate property tax committee meeting would come from higher business property taxes.

However, DFL senators still need to find $68 million to complete their relief plan, Taxes Chairman Tom Bakk said. What he called corporate tax loopholes - and most Republicans call business tax increases - would be a prime target for more money.

"I think it's reasonable to ask the business community to participate in that," he said, noting that businesses benefit from stronger schools.

Property Tax Chairman Rod Skoe, DFL-Clearbrook, agreed.

"We're trying to bring some equalization into the property tax system," Skoe said.

Income taxes could increase to help lower homeowner property taxes, Bakk said.

Bakk said the Senate package will mean actual reductions in property tax payments for homeowners.

But he and Skoe later said they know not all communities will use new state money to cut property taxes.

Also included in the Senate property tax proposal is a $9 million increase in agricultural homestead land market value credits. The tier for the agricultural land market value credit jumps from $115,000 to $150,000, increasing the maximum credit increases from $345 to $450.

Sen. Joe Gimse, R-Willmar, said he wasn't crazy about the sound of raising business property taxes to lighten the load for homeowners.

"In a time of budget surpluses," Gimse said, "I don't know that it's necessary."

While happy to hear property taxes would go down for homeowners, Sen. Bill Ingebrigtsen, R-Alexandria, said he was disheartened to learn "it'll be funded off the backs of businesses."

"It's real disturbing when they start talking about hitting businesses and raising taxes on them," Ingebrigtsen said.

Minnesota may be developing a reputation as being unfriendly to businesses, he said.

"The ripple effect of that," Ingebrigtsen said, "is going to be devastating."

Don Davis and Mike Longaecker work for Forum Communications Co., which owns the Bemidji Pioneer.