DFLers tie property tax relief to income

The Democratic-Farmer-Labor plan would base tax relief on a homeowner's "ability to pay," said DFL Rep. Paul Marquart of Dilworth, the plan's chief architect and chairman of the House property tax subcommittee. It would provide state refunds to homeowners whose property tax bills exceed 2 percent of their income.

"This plan, linking (property taxes) to income, will allow senior citizens to stay in their homes, families to stay in their neighborhoods and farmers to remain on their land," Marquart said.

"I don't think a veto is a foregone conclusion," he said, noting that property tax cuts have bipartisan appeal.

But Pawlenty spokesman Brian McClung said, "We don't support their plan for a new, higher income tax rate."

House DFLers previously proposed raising the top-tier income tax rate from 7.85 percent to 9 percent. That would affect single taxpayers earning more than $226,000 a year and married couples with annual incomes exceeding $400,000.

It would give Minnesota the third-highest top income tax rate in the nation, McClung said. But he found something to like in the House DFL bill.

"We appreciate that the House agrees with the governor's approach that property tax relief should be directed mostly to homeowners and not sent to local governmental units in the hope that it will result in lower property taxes," he said.

Without new state-paid relief, property taxes are forecast to increase 8.8 percent next year. Under Marquart's plan, homeowner taxes would decrease 3.4 percent in 2008, according to an analysis by the nonpartisan House Research Department. His bill would provide $543 million for property tax relief over two years.

House Tax Committee Chairwoman Ann Lenczewski, DFL-Bloomington, said Marquart's plan would be the core of the major House tax bill this year. But it differs significantly from a less ambitious property tax relief bill moving through the Senate. The two chambers will have to reconcile their differences in a conference committee, and eventually they must come up with a bill Pawlenty will sign.

The property tax "drives people crazy," Lenczewski said. But it's "our most stable tax and we're going to keep it."

The centerpiece of Marquart's plan is a new "Homestead Credit State Refund." Under that provision, households with incomes less than $150,000 would be eligible for a state refund for a portion of property taxes that exceeds 2 percent of income.

The percentage refunded decreases from 90 percent for households with incomes less than $5,400 to 25 percent for those with incomes between $134,000 and $150,000, according to a House analysis. The maximum refund would be $2,500.