House DFLers propose $1.5 billion in tax increases to close budget gap

House Democrats would raise taxes by $1.5 billion over the next two years, cut spending by $843 million and employ a larger accounting shift than Gov. Tim Pawlenty proposes in an effort to balance the state's budget without resorting to borrowing.

Speaker Margaret Anderson Kelliher said Thursday that House DFLers are "committed to a fair and responsible budget" and that Pawlenty's budget proposal is "balanced for the next election, but not for the next generation."

Pawlenty's plan, released this week, would not raise state taxes but would use one-time shifts and borrowing to get the state past a $4.5 billion deficit projected for 2010-11.

House DFLers say that does little to raise revenue or to revamp a state tax system that they say has tilted too heavily in favor of the wealthy.

"When you're making more money, there is an expectation that you're sharing back," said Kelliher, DFL-Minneapolis. She noted that recent studies have projected that the wealthiest Minnesotans will pay 8.8 percent of their income on state and local taxes while middle-income people will pay closer to 12 percent. "People demand that we have fair taxes in this state again," she said.

Kelliher did not offer any details on how her caucus planned to raise $1.5 billion in revenue but said that it should be done "progressively." That would seem to point toward the individual income tax, the state's most progressive because it taxes higher income at higher levels.

State Revenue Commissioner Ward Einess said that a tax increase on higher-income Minnesotans would not come close to raising the money House DFLers need. Citing an earlier proposal by Sen. Ann Rest, DFL-New Hope, Einess said that creating a fourth tax bracket starting at 8.5 percent for couples making $250,000 or more would net the state just $140 million a year.

"You're not seeing a lot of details because if you have to rely on the income tax, you quickly come to the realization that we'll end up with the highest income tax in the country," Einess said.

Preserving education funding

Flanked by young people ranging from toddlers to college students, Kelliher said the House plan would preserve funding for early ed, K-12 and higher ed.

Pawlenty's plan would increase funding for K-12 and hold off on cuts to higher ed. Senate DFLers have said the state's budget crisis is too grave to spare K-12 schools, which make up 40 percent of all state spending.

Thursday's proposal was the last piece of the puzzle needed before the House, Senate and governor can begin negotiations in earnest on how to close the $4.56 billion budget gap.

House Minority Leader Marty Seifert, R-Marshall, predicted that neither the House nor Senate tax proposals would survive and advised DFLers to "get it out of their system now." Otherwise, he said, their plan "will simply get vetoed. The vetoes will be sustained, and then we'll have to start over."

He compared the DFL plan to Wal-Mart's "save money, live better" theme. "I think the proposal that we just had was pay more and get less," he quipped.

With Minnesota's latest unemployment figure rising to 8.1 percent, he said, the state can ill-afford tax increases that would hurt job providers and "chase them out of the state."

But Kelliher said job creation doesn't necessarily come from the wealthy. "What creates jobs in Minnesota is people being able to work and spend their dollar over and over again in their local communities putting other people to work," she said.

Pawlenty spokesman Brian McClung said the House DFL plan "is a lot like the Senate DFL plan -- short on specifics and long on tax increases."

But Kelliher said Pawlenty's plan is a "House of Mirrors," shifting pots of money to give his budget the illusion of balance.

House Majority Leader Tony Sertich said that, among other things, Pawlenty's budget shifts $917 million from a Health Care Access Fund designated for subsidized health care. McClung challenged that assertion but could not provide a figure for how much of the fund Pawlenty does propose to use.

McClung acknowledged that part of Pawlenty's $2.4 billion of cuts and savings does come from the access fund, which is generated by a 2 percent tax on health care providers.

Staff writer Kevin Duchschere contributed to this report. Patricia Lopez • 651-222-1288