Tax bills still in play on the last weekend

If you’re keeping score at home on this last Saturday of session, the only public forum besides the legislative floor where anything of much immediate consequence might happen is the Taxes Conference Committee.

Though it’s been largely overlooked in the hubbub of the past week, the conference committee on HF2323 still has a bill to finish. This initial taxes conference committee kept on working after the second one–which produced the $1 billion tax hike package that Gov. Tim Pawlenty vetoed last weekend–came and went.

House Speaker Margaret Anderson Kelliher (DFL-Minneapolis) has said repeatedly that the remaining tax omnibus won’t contain any new tax increase proposals. But that doesn’t mean it won’t have an impact on the budget. Kelliher noted in Friday morning’s gathering of the Legislative Commission on Planning and Fiscal Policy that the forthcoming tax bill will probably have a negative number on the bottom line–apparently suggesting that it will contain some of House Taxes Chair Ann Lenczewski’s (DFL-Bloomington) (pictured) provisions ending tax exemptions from the original House omnibus tax bill. (This produces a negative number because the revenue foregone through exemptions from the tax code is counted by the state as spending. So cutting this "spending" on exemptions means collecting more revenue.)

The most lucrative part of Lenczewski’s original plan, however, was a proposal to end the state’s mortgage interest deduction for homes and replace it with a capped credit that only recognizes the deduction on the first $10,000 in mortgage interest. It would have extracted most of its estimated $344 million in new revenue from the owners of expensive houses, but the plan was ill-understood from the start by Lenczewski’s fellow DFLers and it wound up facing bipartisan resistance. Among the skeptics is Lenczewski’s conference committee co-chair, Sen. Tom Bakk (DFL-Cook). That makes it an unlikely candidate for inclusion in the conference report.

Meanwhile, as we noted on Thursday, the question of $1 billion in new revenue–which both the governor’s and the Legislature’s budgets counted on–still hangs over the proceedings. And despite the polarized climate of the last few days, it’s in both parties’ interest to find a compromise.

Before Thursday’s announcement that Pawlenty would unilaterally veto and unallot his way to a balanced budget, DFL leaders seemed open to a lesser version of the governor’s appropriation bonds scheme provided the governor agreed to some new permanent revenue in the package as well–probably through sin taxes on alcohol and/or tobacco, which is a route Pawlenty himself took in 2005.

Legislative leaders are scheduled to meet with Pawlenty this morning at 11.