The T Word: Income tax surcharges through the ages

If history is any guide, the legislative tax committees that are mulling ways to raise new revenue to help close Minnesota’s $4.7 billion budget gap may be pushed to embrace an income tax surcharge as part of the solution. Some DFLers think this approach, which was last used during the Quie-era budget crisis of the early 1980s, stands a better chance than upper-bracket increases of getting past Gov. Tim Pawlenty’s veto pen on semantic grounds, since it can be argued that a temporary "surcharge," like the "health impact fee" on cigarettes that Pawlenty himself proposed in 2005, is not a new tax.

But Minnesota also has a long history of using income tax surcharges to cope with sudden, exigent budgetary circumstances. Rep. Al Juhnke (DFL-Willmar) (pictured) recently discovered as much for himself when a constituent gave him a copy (PDF link) of a 1955 state tax return showing the application of surcharges. Here’s a highlighted snapshot:

The state has no record of how many times surcharges have been employed through the years, but Joel Michael of the House Research Department notes that they were used "a handful of times" in the 1950s for two principal reasons–"to pay for benefits to veterans of World War II and the Korean War, and for school funding as the children of the baby boom started going to school. [The surcharges] were imposed, then extended, and eventually rolled into the [tax] base."

That doesn’t mean that surcharges always become a permanent part of the budget, however; as Michael notes, the 10 percent surcharge applied in the Quie years was discontinued after the fiscal crisis had passed.