The T Word: House omnibus tax bill goes for new top income bracket, exemption reform and sin taxes

Here’s a quick run-through of the marquee proposals from Rep. Ann Lenczewski’s (DFL-Bloomington) House omnibus tax bill, offered this morning as a delete-everything amendment to HF2323. (All revenue estimates are for the 2010-11 biennium.)

• A new fourth income tax bracket of 9 percent would kick in on adjusted gross income over the threshold of $300,000 for married joint filers (or $169,700 for singles and $255,560 for head-of-householder filers). The bill would also reduce the tax rate on Minnesota’s two lowest income brackets. Households with adjusted gross incomes under $33,220 would see their rates drop from 5.35 percent to 5 percent, and those under $131,970 would be reduced by a lesser margin, from 7.05 percent to 7 percent. Net estimated new revenue: $468 million.
• A long list of tax exemptions and credits would end–among them, itemized deductions for mortgage interest, charitable contributions, and personal property taxes, as well as credits for K-12 education, long-term care, and child & dependent care–though some would be replaced by new credits for mortgage interest, charitable contributions and dependent children. In all, the terminated exemptions and credits total nearly $1.6 billion, but the majority of that sum is then reallocated to new credits, including a mortgage interest credit designed to skew that benefit more decisively toward the middle class and away from the owners of the most expensive homes. Net estimated new revenue: $489 million.
• Tax hikes for tobacco and alcohol would include an additional 54-cent-per-pack cigarette levy that’s expected to raise $187 million; a 91-cent-per-ounce tax on chewing tobacco that would generate $17 million; and a combination of excise and gross receipts tax hikes on alcohol projected to raise another $209 million. Net estimated new revenue: $413 million.

The package is rounded out by a series of adjustments in corporate franchise taxes–keynoted by a proposed repeal of foreign operating corporations (FOC) and a disallowing of foreign royalty subtraction–worth approximately $123 million in new revenue, and by estate and gift tax changes totaling roughly $20 million.

In addition, the omnibus bill incorporates Rep. Paul Marquart’s (DFL-Dilworth) property tax reform proposal [previous PIM item], which would save the state’s general fund roughly $100 million while allowing counties to diversify their tax base and alleviate some of the upward pressure on property taxes by levying up to one-half of 1 percent in new sales taxes at the county level.

House leadership had charged the taxes committee with proposing $1.5 billion in new revenues.

We’ll look at the bill’s particulars in more detail in subsequent posts.