Minn. Legislature sends Pawlenty bill that cuts spending, raises taxes on highest-paid

Minn. lawmakers vote to raise taxes, cut spending

ST. PAUL, Minn. — The Democratic-controlled Legislature on Monday sent a bill raising income taxes for the highest-paid Minnesotans to a tax-averse Gov. Tim Pawlenty as part of their plan to wipe away a $2.9 billion deficit.

The proposal, which also makes spending cuts, barely cleared the Senate on a 34-33 vote before passing the House 71-63. Pawlenty, a potential Republican presidential candidate, eliminated any suspense by promising to veto it. Neither chamber’s votes in favor were anywhere near what it would take for a veto override.

Lawmakers and the governor are hard-pressed to balance the budget before the state constitution requires the legislature to adjourn in a week. The state Supreme Court made the crisis more acute last week when it said Pawlenty exceeded his authority last year when he ordered budget cuts without legislators’ approval.

They’re far from reaching a budget deal.

Democrats were leaning on their large majorities in both chambers to pass the tax provision. Even so, a dozen Senate Democrats voted no. The deciding vote was cast by Sen. Tarryl Clark, a candidate for Congress in a right-leaning district represented by U.S. Rep. Michele Bachmann, an outspoken anti-tax Republican. In the House, 16 Democrats broke ranks with their leaders.

The proposal would establish a new income tax bracket for 122,000 high-income taxpayers, raising almost $400 million through the middle of next year.

Couples filing jointly would pay a 9.1 percent tax on income topping $200,000 after deductions and credits on 2010 taxes payable next year. The higher rate also would apply to taxable income of more than $113,100 for singles and more than $170,350 for heads of household.

The higher taxes would disappear if the state built up a budget surplus of at least $500 million. The bill also would roll back $40 million worth of President George W. Bush-era state income tax cuts for high-income taxpayers a year earlier than scheduled.

House debate focused on whether the higher tax would cost the state jobs in the long run.

“Tax the rich and the rich won’t be able to afford to hire anymore,” argued Rep. Bob Gunther, R-Fairmont.

Rep. Steve Simon, DFL-St. Louis Park, defended the proposal’s blend of cuts and tax hikes, saying the Republican no-new-tax call is misguided.

“This isn’t a religious cult. This is a legislature,” Simon said. “It’s about time we start listening to reason.”

Top Democrats said the taxes would cushion schoolchildren and college students from the state’s financial problems. They said they accepted most of Pawlenty’s budget plan and hope he will bend.

“Those that would like to boil this down to whether taxes will be increased or not are oversimplifying the problem and the fiscal situation we’re in right now,” House Majority Leader Tony Sertich said.

Senate Majority Leader Larry Pogemiller blamed Pawlenty for putting the state in a bad financial position.

“The reason we have this problem is the inability of the state to make the hard decisions at the right time,” he said.

Republicans said the tax hike would hit small business owners who pay company taxes through individual income tax returns. They said it would drive away jobs.

“We’re asking taxpayers to bail out the state government,” Sen. Chris Gerlach, R-Apple Valley, said of Democrats. Gerlach joined all Republicans in voting against it.

House Speaker Margaret Anderson Kelliher said the vote had to be Monday to leave enough time to try to override a veto with GOP help. But top Republicans said their members won’t vote to override and it would take switches in Democratic votes, too.

Pawlenty promised to veto the bill, which he said would give Minnesota the nation’s fifth-highest income tax rate and hurt small businesses.

“The DFL’s proposed tax increase is like Jason in ‘Friday the 13th’ — it’s scary and it keeps coming back,” he said in a statement.

The tax plans are part of a deficit fix that includes $680 million in spending cuts and $1.7 billion in delayed payments to public schools, largely mirroring the reductions Pawlenty made last year. Enacting those cuts would avert a cash crunch that could result from schools, cities or other groups touched by Pawlenty’s cuts seeking reimbursement of that aid after last week’s court decision.

Associated Press Writer Brian Bakst contributed to this report.