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Higher taxes on incomes of over $300,000 proposed

Minnesota House Democrats propose increasing taxes on rich Minnesotans, smokers, drinkers, businesses that recently moved to Minnesota and youths downloading Internet music.

House Tax Chairwoman Ann Lenczewski, DFL-Bloomington, said the bill is the biggest tax-reform measure in 20 years. She said it eliminates tax laws the state no longer can afford, items not fair and what is not working.

Republicans, however, said the bill introduced Monday is little more than a tax increase for most Minnesotans.

The House measure, written by Democrats who control the chamber, raises $1.5 billion for the next two-year state budget.

A bill to be unveiled today by Senate Democrats would raise taxes $2 billion. It is not expected to include alcohol or tobacco tax increases, like the House plan, but may affect lower income Minnesotans than the House.

Republican Gov. Tim Pawlenty says he will not consider a state tax increase, but he would borrow $1 billion to help run the state.

Minnesota faces a $4.6 billion deficit in a budget that likely will spend more than $33 billion for the two years beginning July 1.

House Minority Leader Marty Seifert, R-Marshall, said the Democratic tax plan would hurt businesses and hinder job creation.

Rep. Laura Brod, R-New Prague, said that the bill removes some of the Job Opportunity Building Zones tax breaks, meaning businesses that moved to Minnesota to get the tax breaks would discover those breaks are no longer available. That is breaking a state promise, she said.

Overall, Brod said, the bill adds taxes on many Minnesotans. "It's hitting everyone from age 9 on up."

Lenczewski said the bill features "bold reform" that is acceptable because of the big budget problem. "Let's not waste the deficit."

The tax leader said among those reforms are eliminations of several tax breaks that mostly wealthy Minnesotans receive.

Lenczewski's bill would raise $468 million in the next two years by raising income taxes on Minnesota couples who earn at least $300,000 a year. Lenczewski said the richest Minnesotans now pay the lowest tax rate.

The proposal would increase taxes on many alcoholic drinks by 3 cents to 5 cents per drink, raising $42 million.

Tobacco taxes also would go up; cigarettes, for instance, would be taxed 54 cents per pack of 20 cigarettes more than under current law. Total state taxes would be $1.77 per pack, with federal taxes also going up.

Higher tobacco taxes would bring the state $187 million.

Lenczewski said the higher tobacco and liquor taxes are designed to help the state pay for health-care costs associated with smoking and drinking that "cost all Minnesotans."


Also, the House bill would eliminate a limit on how much property tax levies could rise in cities and counties. Counties could increase sales taxes by a half percent instead of raising property taxes.

Local governments, which would have fewer state mandates under the bill, would receive slightly less state aid, but Rep. Paul Marquart, DFL-Dilworth, said city aids would return to 2009 levels in two years.

Rep. Morrie Lanning, R-Moorhead, wrote provisions that would eliminate the now-mandated truth in taxation hearings local governments must hold to give the public a chance to comment on proposed taxes. However, under the new bill governments would be required to let taxpayers know about other meetings when they can provide input.

Pawlenty's JOBZ program takes a hit in the House bill. The program is designed to eliminate most taxes on businesses locating in many rural areas. The bill eliminates the breaks given for income and corporate franchise taxes.

The bill would tax downloads such as music from the Internet.