House backs higher income taxesPublished 10:18am Thursday, April 25, 2013
ST. PAUL — The Minnesota House on Wednesday approved a bill that would raise state taxes by $2.6 billion in part by enacting the state’s first alcohol tax increase in about 25 years.
The higher booze tax — along with new charges on cigarettes, some corporations and certain incomes six figures and up — would be used to balance the state budget and pay off past debts to schools and other entities.
House Majority Leader Erin Murphy said the tax bill departs from “the old way” of pushing budget problems off into the future. “Protecting the status quo is not a plan and just saying no is not a plan,” Murphy said.
The bill passed on a 69-64 vote, with four Democrats joining every Republican in opposition.
“There’s a tax in here for almost everything,” Rep. Jenifer Loon, R-Eden Prairie, lamented just before the vote.
The plan could be short-lived: Senate Democrats aren’t fans of the alcohol tax, and Democratic Gov. Mark Dayton is noncommittal.
The beer, wine and liquor tax, last changed in 1987, is lodged at the wholesale level so the effect on consumers is the subject of a debate within the debate. Consumers would surely pay more as the cost is passed through the production and retail chain.
Minnesota breweries say the House bill’s proposed increase on alcohol excise taxes — from $4.60 for a 31-gallon barrel of beer to $27.75 — would hit consumers with an extra $2 for a 12-pack of beer.
House Taxes Chairwoman Ann Lenczewski, DFL-Bloomington, fought back against that charge. She said the increase amounts to an extra 7 cents per drink.
“If somebody’s charging you more than that, they’re just making a profit,” she said. “You need to ask those folks why they would be bilking their customers. There’s nothing in the law that requires anybody to pay more than 7 cents.”
Lenczewski said the excise tax increase will help the state recoup some of the social costs of alcohol abuse, such as prosecuting drunken driving and other alcohol-fueled crimes. The proposal would raise tax rates on wines, liquors and beer by varying rates. Advocates said the taxes could deter excessive alcohol use.
Republican Rep. Jim Newberger, R-Becker, said Democrats were fixing the budget on the backs of people who smoke and drink.
“It’s not a sin tax; it’s an addiction tax,” Newberger said of plan to boost the state cigarette charges to $2.83 per pack. “Shame on the people who want to do that.”
Even some Democrats worried that the tobacco tax “goes a little bit too far,” as freshman Rep. Jason Metsa of Virginia put it. But Metsa said he stood by the bill as a needed step to pay for important programs.
“No more shifts, no more games, no more smoke and mirrors. Yes it costs money. It costs money to do these things,” added Rep. Erik Simonson, DFL-Duluth.
Rep. Greg Davids, a Preston Republican who chaired the tax committee when the GOP controlled the Legislature the previous two years, said the tax bill would hit “the poorest of the poor and the richest of the rich.”
“The House tax bill is so bad, it makes Gov. Dayton look like a fiscal conservative,” Davids said.
Regarding income, the bill would impose a temporary 4 percent surcharge on taxpayers who make more than $500,000 a year. The surcharge would end once the state pays off the $854 million it still owes schools from previous budget fixes and an additional $400 million in tax shifts that is essentially borrowing from businesses.
The surcharge in the bill would be in addition to a new, permanent “fourth-tier” income tax rate of 8.49 percent for couples earning more than $400,000. The state’s top tax rate is currently 7.85 percent on income for married filers once it tops $140,000.
If the House tax plan becomes law, Minnesota would temporarily have a 12.49 percent upper income tax rate — one of the top three in the country.
The business lobby waged a full-court press against the income taxes, saying some Main Street business owners would get pinched because they file returns on their profits through personal income tax.
“If this is signed into law, it will send a very negative signal to entrepreneurs and investors and revive the stigma of Minnesota being a very unattractive place to invest in or do business in,” said Mike Hickey, state director of the National Federation of Independent Business.
The new proceeds from the bill would wipe out a $627 million projected budget deficit and support new spending, including the $550 million funding increase for Minnesota schools in the education budget that passed the House floor with GOP help on Tuesday. Programs that are used to curb rising property taxes or give direct relief to homeowners would be funded at higher levels in the House bill.
The Senate tax plan, which was rolled out this week, includes a wider-reaching income tax proposal and new sales taxes. Dayton abandoned a sales tax push earlier.
Because all three have some version of an income tax increase on high-end earners, some sort of hike is virtually certain to happen this year. The same goes for the tobacco tax, which would raise the levy on cigarettes anywhere from $.94 to $1.61 per pack. The rest of the taxes — alcohol and sales — are up in the air.