Slot machines, tax exemptions among state revenue suggestions

When he announced his budget last week, Governor Pawlenty said the state can't afford any tax increases. In fact, his budget plan includes some tax cuts. But many DFLers in the Legislature don't share his sentiment.

"Anybody that thinks that we're going to get out of this session without raising some revenue is living in a dream world," said DFL Representative Tom Rukavina, of Virginia, during a recent House Tax Committee hearing.

"The question is who are you going to raise the revenue on?"

It's a good question that hasn't been answered yet.

To date, very few bills proposed in the House and Senate deal directly with the budget deficit. In fact, most would increase state spending and make the deficit bigger. Even though lawmakers are keeping their powder dry on budget balancing solutions, some special interest groups are being more vocal.

Eliot Seide represents the American Federation of State, County and Municipal Employees, the state's largest public employee union.

"Public workers want to be part of this solution and the state's wealthiest citizens need to be part of the solution as well," Seide said. "Those folks making over a quarter of a million dollars a year should have to pay their fare share of taxes. If they just paid the same share as the average Minnesota does, which is a little bit over 11 percent, then this state would raise $1 billion in this next biennium."

DFLers proposed income tax hikes on Minnesota's top earners in 2007, but Governor Pawlenty vetoed that legislation. Legislative leaders are not proposing that option at this time, but DFL Senator John Marty of Roseville said they should.

"Nobody likes tax increases," Marty said. "I also think that we should not be destroying our state, destroying our schools, destroying our health care just to keep somebody's pledge to not talk about taxes."

Other revenue raisers on the table include removing tax exemptions. DFL Representative Ann Lenczewski said she wants to examine all of the exemptions and see which ones should be kept.

"We're rife with all of these loopholes and exemptions and preferential treatments and special deductions and exclusions and exemptions and start disassembling those," Lenczewski said. "Because really what they are is backdoor spending. They really don't belong in the tax code."

Lenczewski didn't provide too many specifics, but a few of the major exemptions include the sales tax exemption on clothing. Independent analysts say removing that exemption would generate about $800 million over the next two years. Eliminating the sales tax on services and other products would generate $3 billion over the biennium. Lenczewski said she may consider those options but only if they also reduce the state's total sales tax.

Lenczewski also said it's unrealistic for the Legislature to balance the budget without cutting spending. In fact, she said spending cuts will probably erase most of the deficit.

The trick for lawmakers hoping to find more money is getting Governor Pawlenty to agree to the revenue raiser. Pawlenty reaffirmed his opposition to tax increases when he was speaking to business groups last week.

"It's not the time to be raising taxes," Pawlenty said. "You will remember that President Obama ran and said 'I'm going to raise a bunch of taxes.' He has since, in the wake of this economic collapse said, 'I don't think that's a wise thing to do right now.'"

Some lawmakers are looking at gambling revenue as an option. Republican Senator Dick Day said he'll propose a bill that would allow slot machines at the Canterbury Park Race track. Day said the proposal would eventually generate $200 million a year for the general fund.

"I'm having more legislators talk to me," Day said. "I don't know if I have a good bipartisan bill yet but it's something that should be done. People really want it done. Other states are doing it and we just can't get it done."

DFL Representative Phyllis Kahn has introduced a different gambling related bill. She wants to allow slot machines at the Minneapolis-St. Paul Airport.

"I have always said that gambling is a regressive tax on stupidity," Kahn said. "Well, this makes it a progressive tax on stupidity because people who have boarding passes are at a higher income level cut than people without boarding passes."

A 2004 fiscal analysis of Kahn's bill suggests the state would capture about $16 million a year from her proposal.

DFL legislative leaders have said they are still examining Governor Pawlenty's budget and will hold hearings across the state to get input on the plan. Republican House Minority Leader Marty Seifert said he doesn't expect any revenue raisers for a few more weeks.

"I'm expecting a barrage of revenue raisers to be introduced in the dead of night on Friday afternoons, when you folks have other things going on," Seifert said. "I expect it to occur sometime in March or April when you're gone on Easter break visiting your mothers. There will be zipped lips in the meantime."

Lawmakers may also wait for the next revenue forecast before they assemble their two-year budget plan. Most expect the budget deficit to grow when the figures are announced on March Third.

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