Pawlenty expected to push tax cuts in budget plan

Gov. Tim Pawlenty is scheduled to release his budget plan on Monday, and it's likely to include job creation proposals that DFL leaders have reacted skeptically to.

Yesterday, Pawlenty gave his eighth and final State of the State address and pushed for a variety of tax cuts that he said will create jobs. Some of the measures could pass, but others appear dead on arrival.

PAWLENTY ENDORSES TAX BREAKS

Just like in his other State of the State speeches, Gov. Pawlenty stressed tax breaks and cuts in state government spending. He said a mix of the two is the best way to spur job creation.

"We all want to maintain Minnesota's quality of life but the term "quality of life" is an empty boast if people don't have jobs," Pawlenty said.

Pawlenty didn't offer specifics on the spending cuts he'll propose when he releases his budget plan, but he did offer some suggestions on his tax plan. Pawlenty wants to cut the state's corporate tax rate by 20 percent, create tax breaks for small businesses, and increase the tax break for research and development. "We need to face the facts, Minnesota's tax system is costing us jobs and our tax code needs to change to meet the challenges and opportunities of our time," Pawlenty said.

Pawlenty's spokesman didn't specify how much the tax breaks would cost the state. A Republican senator who said he intends to sponsor the governor's plan also couldn't provide specifics, but said the costs would be made up with cuts to other areas.

DFL PUSHBACK

That concerns DFL House Speaker Margaret Anderson Kelliher. Kelliher, also a candidate for governor, said more tax cuts will only make the state's $1.2 billion budget deficit bigger.

"If we're in an era of needing to make spending reductions in the budget, then it's awfully hard to imagine that one can be integrity filled and propose more spending, but on the other hand, be out there with an axe cutting everything else to pieces," she said.

The dispute over the right level of taxes and spending has been a constant point of contention between Pawlenty and DFL lawmakers, and it was front and center again on Thursday. Pawlenty argues that Minnesota has a high corporate tax rate and said cutting it will prompt businesses to reinvest or to relocate to the state.

The corporate income tax is projected to pump roughly $1.2 billion into the state's treasury in the current two year budget cycle. DFL Senate Majority Leader Larry Pogemiller was skeptical when asked if the Senate would support cutting the tax.

"Everybody in Minnesota during these hard times are going to have to pay their fair share and I think the corporate community is going to have to pay their fair share too," he said. "I don't know if this is the right time to lower the corporate income tax at the expense of consumers."

PLANS UNDERWAY TO KEEP ST. PAUL FORD PLANT OPEN

Pawlenty also wants to make his signature rural economic development initiative permanent. The so-called JOBZ plan cuts taxes for businesses that relocate or expand in designated non-Metro counties. House and Senate Democrats appear unwilling to make the program permanent, noting the Legislative Auditor found problems with it.

But lawmakers expressed interest in Pawlenty's plan to create a so-called CARZ tax zone in St. Paul to convince Ford to keep its plant in Highland Park running. It would provide tax incentives similar to the JOBZ program.

"750 hard working people at the Ford plant want to keep their jobs and we should do all we can to help them," Pawlenty said.

An official with Ford says the company can't comment on Pawlenty's proposal because they don't have specifics, but the official said they intend to close the plant in 2011.

St. Paul Mayor Chris Coleman said he approached Pawlenty's office to come up with a plan to keep the plant running. He's hoping Pawlenty and the Legislature will ramp up their lobbying efforts.

"It's a full-time job," he said. "It takes a governor's involvement and a mayor's involvement. It's going to take much more than a passive approach to a tax break."

The one proposal that seems to have wide support from both Gov. Pawlenty and state lawmakers is the so-called Angel Investment Tax credit. The incentive is designed to get private seed money into emerging industries, such as bioscience and renewable energy. A similar program already exists in Wisconsin.

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