State Senate passes tax bill on party-line vote

ST. PAUL, Minn. (AP) - The simmering debate at Minnesota's Capitol over the balance between providing government services and encouraging economic growth flared in the Senate on Tuesday, as Republicans passed a tax bill they said would make the state a better place to do business.

Approved on a party-line vote of 37-26, the bill cuts spending by $580 million toward eliminating the state's $5 billion budget shortfall and eliminates the statewide property tax on businesses entirely over the next dozen years. It also reduces aid to local governments and trims a property tax refund for renters.

"There are legislatures and governors around this country lowering taxes, making their states more competitive for their employers," said Sen. Geoff Michel, R-Edina. "We need to engage in that competition."

The debate grew heated as Democrats repeatedly tried - and failed - to attach to the bill income-tax hikes on the state's wealthiest taxpayers that had been sought by Gov. Mark Dayton. They also tried to close a tax provision that shields Minnesota-based companies from paying taxes on foreign profits. Democrats suggested greater tax collections could block property tax increases and the higher taxes on renters, or be used to blunt cuts to social services that benefit the poor and disabled.

"This bill has a simple message," said Sen. John Marty, DFL-Roseville. "We're not going to raise taxes on the wealthiest Minnesotans, not even by a few pennies. We're not going to close corporate loopholes. We're not going to do that because we don't want to raise taxes. But it's very definitely raising taxes, just not for those who are most fortunate."

The "no tax increase" mantra is misleading not just in terms of renters, Democrats said, but because scaling back aid programs for local governments - and cuts to various state programs that are part of other GOP budget bills - are going to put massive pressure on Minnesota cities and counties to turn to property taxpayers in order to pay bills.

Republicans said that's a decision better made at the local level. County officials "should be reducing their budgets too," said Sen. Julianne Ortman, R-Chanhassen, who wrote the tax bill. "I believe they should be supporting their local property taxpayers. I believe they should all make reductions, I believe they know we should all live within our means."

Minnesota's tax climate has been a burden on businesses for too long, Republicans said, and predicted that efforts to relieve it would result in growth, innovation and jobs.

"It is incredible to me that even one business stays in Minnesota," said Sen. Gretchen Hoffman, R-Vergas. She called Democratic efforts "an assault on anyone with any sort of income ... it is incredible to me they even want to stay here."

Republicans voted down or declared out of order numerous DFL efforts to tinker with the bill's tax provisions, but the Democrats have a likely ally in Dayton, who has said he wouldn't support any state budget fix if it doesn't include both spending cuts and some new revenue sources. In a letter to Ortman, several officials from the state Department of Revenue wrote that the Senate tax bill would result in about $600 million in local property tax increases in the next three years.

"The increases in taxes for lower-income Minnesotans would be significantly greater than for the wealthiest Minnesotans" under the bill, acting Revenue Commissioner Dan Salomone and Assistant Commissioner Matt Massman said in the letter.

The Senate bill differs from a House GOP tax bill, passed last week, that includes income-tax cuts, does not phase out the business property tax, and focuses its local government aid cuts on the cities of Minneapolis, St. Paul and Duluth rather than the broader cut included in the Senate bill.

Representatives from the House and Senate along with Dayton's office are likely at some point to begin negotiations over a compromise on the state's tax structure.