Tax-for-tax swap passes state Senate

(AP) Hours after DFL leaders met with Gov. Tim Pawlenty about achieving an orderly finish to the legislative session, the state Senate approved a tax swap bill he is vowing to veto.

The House was expected to decide later Thursday whether to send Pawlenty the bill, which would create a new top income tax bracket and devote all of the money to property tax breaks.

The Senate vote was 35 to 31, with seven Democrats joining all Republicans in opposition.

Under the measure, Minnesota would establish a fourth tier on the income tax of 9 percent. It would be applied to taxable income above $400,000 for married couples and $226,000 for single filers - a wage class Democrats say is only 1 percent of the population.

Senate Tax Chairman Tom Bakk, DFL-Cook, defended the new rate as fair because upper earners currently pay a smaller percentage of their income in taxes than people lower down the pay scale. Plugging the money into property tax refunds and state levy takeovers makes it even more palatable, he said.

"I do not think this is fair to characterize this as a tax increase because it's not," he said.

Freshman Sen. Sharon Erickson Ropes, DFL-Winona, said she and her husband would fall into the fourth tier. She said she would gladly pay, calling it a moral issue and quoting the Biblical verse "to whom much is given, much is expected."

But Republican senators weren't swayed by the trade-off.

Sen. Geoff Michel, R-Edina, implored lawmakers to avoid giving Minnesota the third-in-the-nation top bracket even as he expressed confidence that the bill would ultimately fail.

"The governor will set a land-speed record in vetoing this bill," he said.

Sen. Julianne Ortman, R-Chanhassen, questioned the legitimacy of the promised property tax assistance.

Under the bill, taxpayers who pay more than 2 percent of their income in property taxes would receive refund checks. The amount would depend on a sliding scale and the aid wouldn't go to anyone earning more than $150,000. Some of the new revenue would also be used to bring down local levies.

Ortman said the bill lacked a mechanism to keep local governments from pushing taxes back up.

"Now they can tax at will and the state can come to the rescue," she said.

Tax rates are a key flashpoint as the Legislature attempts to craft a budget before the May 21 adjournment deadline. Pawlenty has vetoed several of the budget bills sent his way and he said he will block any that raise taxes.

Earlier Thursday, DFL legislative leaders met face-to-face with Pawlenty for the first time in a couple of weeks.

After joining him at the governor's mansion for a breakfast of french toast and bacon, the leaders said discussions focused mainly on process and not on the core tax-and-spending disputes.

"We're finding new ways to work with each other," said Assistant Senate Majority Leader Tarryl Clark, DFL-St. Cloud. She said there's no reason for panic yet. "We still have 11 days left, which is a lot of time in legislative time."

Pawlenty spokesman Brian McClung described the meeting as constructive.

"We can't guarantee the outcome, but we can guarantee the effort," he said.