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Over the weekend, Rep. Ann Lenczewski tried selling her Tax Increase Bill as tax reform. That’s insulting, especially considering the things she strips out. Here’s what MPR quoted her as saying:

“This bill proposes the most significant tax overhaul in 20 years,” said the bill’s chief author Rep. Ann Lenczeswki, DFL-Bloomington.

In addition to the tax hikes, Lenczewski’s bill removes a variety of tax breaks for homeowners and businesses. Charitable contributions, the mortgage interest tax deduction and the property tax deduction for homeowners are eliminated and replaced with a tax credit based on income. The bill also eliminates several business tax breaks, like the Research and Development credit and parts of the governor’s JOBZ program.

Lenczewski said she wants to clean up the state’s tax code.

“Which is to sweep the tax code clean of all of the preferential treatment and subsidies and things we can’t afford anymore and instead bring a fairer, more progressive income tax to Minnesotans based on the ability to pay,” she said.

Rep. Lenczewski, what makes you think that stripping out most of the home mortgage deduction is reform? It’s likely that it didn’t dawn on her that that deduction prevents middle income families from paying checks in the thousands of dollars in taxes? Then again, that might’ve been what drove her to include that in her legislation.

‘Reforms’ like this will help kill the housing industry. It’s bad now. Eliminating the tax deduction will kill it entirely.

Let’s reword Rep. Lenczewski’s opening statement to be truthful. First, here’s her statement:

“This bill proposes the most significant tax overhaul in 20 years.”

Here’s how it’d read if truth-in-advertising laws were applied:

“This bill proposes the most significant tax ripoff in 20 years.”

Rep. Gene Pelowski criticized her legislation last week. Here’s what Rep. Pelowski said:

Pelowski said lawmakers won’t have enough votes to override a Pawlenty veto of a DFL tax plan, and said the proposals are a “fiction” that will force lawmakers to scramble to craft another budget proposal after Pawlenty’s veto. “We have to do what is real and not go through an exercise of what-ifs,” Pelowski said. “There are no what-ifs. There is only the stark reality of this budget deficit.”

Gov. Pawlenty will veto any tax increase. That’s what he told Sen. Bakk in this letter:

Dear Senator Bakk:

In this historically challenging economic time, you have chosen to pursue reckless tax increases on nearly every Minnesota resident. Minnesotans are tightening their belts and making hard sacrifices to manage their family budgets. State government needs to do the same. Now is the time to reduce government spending and prioritize programs, not increase taxes.

Gov. Pawlenty follows that up with this closing:

I have serious concerns about your bill. As it stands, it will be vetoed. I urge you not to raise taxes on the citizens of Minnesota in these challenging economic times.

Gov. Pawlenty won’t have to veto Sen. Bakk’s bill. It barely limped out of a veto-proof Senate by a 35-31 margin. It’ll get shredded in conference committee.

BTW, the DFL senators that voted against the bill last week shouldn’t think that that’ll give them political cover, either, when the conference committee report is voted on. If they voted against Sen. Bakk’s bill originally, then vote for the conference committee report, they’re still voting for a massive, unpopular tax increase.

How Generous

Rep. Paul Marquart, DFL-Dilworth, said it allows counties to impose a sales tax to offset state aid cuts. “Instead of just raising those property taxes to make up those cuts or cut services, we’re going to give you another option,” he said. “We’re going to allow you, if you wish, to impose a one half cent sales tax.”

Rep. Laura Brod isn’t impressed:

The bill also removes the cap on property tax increases. Republicans argue that the tax hikes in the bill will harm the state’s struggling economy. Rep. Laura Brod, R-New Prague, said it’s unfair to average Minnesotans.

“We’re going to start seeing more losers than winners so this bill isn’t about a more progressive system, it’s more about a more regressive tax code,” she said. “While the argument is about taking away all of these deductions and about creating tax fairness. If your definition of what’s fair is taxing those who least afford it than I guess you’d want to vote for this bill.”

I posted a list of new tax increases here. Here’s a partial list of the DFL’s tax increases:

  • Cigarette Tax: $204 million tax increase
  • Alcohol Taxes: $209.1 million tax increase
  • Boats, ATVs & Snowmobiles: $10.5 million tax increase
  • iTunes Tax: $3.17 million tax increase
  • Gift Tax: $20.6 million tax increase

That’s just part of the House DFL’s plan. Here’s more of the DFL’s tax increases:

  • Local Option Sales Tax: $391 million
  • Income Tax: $467.7 million tax increase

What’s most interesting to me is that Sen. Bakk actually admits that raising taxes directly affects the economy:

Senate Taxes Committee Chairman Tom Bakk, DFL-Cook, said eliminating the current mortgage interest deduction could hurt Minnesota’s high rate of home ownership and higher alcohol taxes would drive some liquor shoppers across the Wisconsin border.

I asked them what I’m asking now: If Sen. Bakk admits that people will drive into Wisconsin to save $20 in alcohol taxes, why wouldn’t it then follow that small businesses will drive across the South Dakota border to save $50,000 in income taxes?

Rep. Lenczewski’s statement that her legislation is tax reform is spin. I can’t put it any clearer than that. What’s most insulting of all the things Rep. Lenczewski said is this:

“Which is to sweep the tax code clean of all of the preferential treatment and subsidies and things we can’t afford anymore and instead bring a fairer, more progressive income tax to Minnesotans based on the ability to pay.”

I’m betting that few people who just filed their taxes think that taking their home mortgage deduction think of that deduction as preferential treatment or as a subsidy. I’m willing to bet that they think of it as the difference between breaking even and paying thousands of dollars or the difference between breaking even and getting a refund.

It’s a staple of the tax code that’s helped people realize the dream of home ownership. That’s hardly a luxury.

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8 Responses to “Tax Reform, DFL Style”

  • J. Ewing says:

    If the DFL wants to create tax fairness, then perhaps they ought to do away with EVERY deduction, credit and stipulation and go to a straight flat tax. It still isn’t “fair” in that everyone pays the same, but everyone would pay the same percentage, and that is at least arguably fair. There can be nothing fair unless every dollar is treated exactly the same– not taxed on some, untaxed on others, and all depending on who earned it, or where or how, and how many other dollars were earned. That’s just chaos.

    The other thing left unexplained is how it is “fair” to tax some people at 100 times the amount, and at 10 times the percentage rate, as some other supposedly equal citizens of the State? If they are trying to make the tax code “fair,” are they admitting that the current tax code is UNfair? Doesn’t that beg the question of why they passed an unfair tax before?

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