Tax committees meet; Faint signs of economic improvement

Yesterday at the Capitol

Senate Tax Committee unveils tax bill - House Tax Committee approves bill
Senate Tax Committee Chair, Tom Bakk, DFL-Cook, released the Senate's tax proposal yesterday. Under the bill, income tax rates are set at 6 percent, 7.7 percent and 8.5 percent. The bill also creates a fourth tier with a rate of 9.9 percent for single taxpayers making $141,250 in taxable net income and for married couples making $250,000 in taxable net income. The bill also sets the alternative minimum tax rate at 7 percent for tax years 2009 to 2013 and then returns to the current rate in tax year 2013.

Sen. Bakk said the proposal raises income taxes at all levels in order to raise $2.188 billion over the course of the next biennium. However, Bakk said the new income tax rates will blink off in 2014. He said the income tax increase will have an impact on most tax filers, but 15 percent of taxpayers will not be affected by the change. Bakk said the bill is weighted toward high income households with 3.5 percent of the highest income taxpayers accounting for 40 percent of the increase.

Bakk said the bill is part of the solution to the state's budget crisis. "The appropriation bills all contain seven percent cuts in base spending, but those cuts would be much more severe without the revenue raised in the bill," Bakk said.

Over in the House, the House Tax Committee narrowly approved the tax omnibus bill by a vote of 16-14 yesterday. It now moves to the House Ways and Means Committee, where it is scheduled to be taken up this morning.

Rep. Ann Lenczewski, DFL-Bloomington, the committee chairwoman, said the bill, HF 2323, is an attempt to reform the tax code. The bill cuts $1.6 billion in the current biennium by eliminating dozens of existing business subsidies and other tax expenditures, including Gov. Tim Pawlenty's economic development initiative known as Job Opportunity Building Zones, or JOBZ. The bill raises $1.5 billion in revenue, with a new income tax rate of 9 percent for couples making more than $300,000 a year, a tax on cigarettes of 54 cents a pack, and adds 1 to 3 cents to the cost of a drink through the alcohol tax. The bill also expands the sales tax to the purchase of goods on the internet, as well as the digital downloads of music, books and video.

Economic outlook showing faint signs of improvement
The House Higher Education and Workforce Development Finance and Policy Division heard from Dan McElroy, commissioner of the Department of Employment and Economic Development, yesterday. Commissioner McElroy told lawmakers that the economy is showing faint signs of improvement, but also cautioned that the slight improvements mask grim realities in some parts of the state.

McElroy said the number of initial unemployment insurance claims in the state had dropped slightly, and said national trends with some indicators like orders for manufactured goods are showing early signs of improvement. He did note, however, the state unemployment rate has reached 8.2 percent, the highest it has been since 1983.

Today at the Capitol
The House is scheduled to take up the higher education omnibus bill on the floor today. The House goes into session at 11:00 a.m.

At the Capitol:
Legislative schedules are available for the House and Senate.