Bill eliminates tax breaks for businesses

Rep. Ann Lenczewski, DFL-Bloomington, said she came up with the idea for her tax bill after finance officials announced a projected state budget deficit of $935 million. She said she told House researchers to comb through the state tax code to find every corporate tax break. She then drafted a bill that would repeal all of them.

"Some are teeny-tiny like the bovine credit and some are massive like FOC but they're all under the same umbrella" she said.

In other words, Lenczewski said, she targeted every portion of the state's tax code that gives tax breaks to individual companies or groups of producers.

In particular, the bill targets larger companies that operate overseas. It would close the so-called tax loophole for corporations that operate overseas and would require businesses that operate so-called tax havens in foreign countries to pay taxes.

The bill would also cut tax breaks on foreign royalties. In other words, when a company like Medtronic that has a patent on a device licenses the patent to a foreign subsidiary for a fee, the entire fee would now be taxed.

The bill would also cut tax credits for research and development and eliminate Gov. Tim Pawlenty's signature economic development program-- tax free zones for businesses.

This seems to be the first layer of the onion peeling back and the other alternatives are harder."

Lenczewski said cutting spending that benefits private companies is easier than cutting health care, higher education and the courts.

"None of those to me are easier to do than stopping corporate subsidies," she said. "So my feeling is that if people are having a tough time repealing corporate subsidies, it's going to be a long road to get out of a billion if we can't do this. This seems to be the first layer of the onion peeling back and the other alternatives are harder."

Lenczeski said because her bill doesn't pick and choose who gets business tax breaks, it would create a fairer playing field for all Minnesota businesses.

In exchange for eliminating the subsidies, Lenczewski would cut the corporate franchise tax by 1 percentage point and would eliminate the alternative minimum tax on businesses. She said overall, her tax bill would generate about $100 million in revenue to the state.

Gov. Pawlenty's spokesman Brian McClung said the governor's office was still sorting through the details of the bill, but he said it appears to be heading in the wrong direction.

"It looks like this bill is a net tax increase," he said. "It also does damage to some programs that we think are important to grow jobs in Minnesota. When you have a faltering economy, you do not want to be raising taxes. You particularly don't want to be raising taxes in areas that help us in terms of job creation."

In particular, McClung said Pawlenty does not support the total elimination of JOBZ, the governor's economic development initiative for rural Minnesota. A February report by the Legislative Auditor said the program was not focused on the most economically challeneged areas of the state and that some businesses in the program would have expanded without the tax break.

McClung said JOBZ needs retooling but should not be totally eliminated.

Business leaders also raised concerns about the bill. Jill Larson, with the Minnesota Business Partnership, said at first glance, the bill would discourage businesses from investing in Minnesota. She said cutting tax breaks for research and development and removing other tax breaks would discourage employers from doing business in Minnesota.

"I don't think it does anything to help grow jobs, and I think everybody's focus right now is on growing jobs, improving the economy and our concern is that those provisions don't necessarily get us there," she said.

The tax bill could also set up a showdown between Pawlenty and Democrats who control the Legislature. DFLers in the House and Senate have not yet released their budget plan.

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