Calling for an end to the “fiscal games” and “accounting gimmicks” of the last 10 years, Gov. Mark Dayton released his biennial budget proposal Tuesday, which he said will eliminate the state’s $1.1 billion budget deficit and balance government spending and revenue over the next two fiscal years.
Dayton’s proposals include cutting the sales tax rate from 6.875 percent to 5.5 percent, while broadening the tax to many goods and services that are currently exempt. He also seeks to create a new income tax bracket on the wealthiest 2 percent of Minnesotans, while providing a rebate for the first $500 of property taxes paid going forward from 2013.
“The result of these changes in the income tax, sales tax and property tax would be to reduce the total state and local taxes paid by most Minnesotans,” Dayton said.
Republican lawmakers quickly disputed that assertion.
“The governor has said numerous times over the last couple of years he would only tax the wealthiest Minnesotans. Today we learned that what he actually meant is that he’s going to tax every Minnesotan, and we’re very concerned about that,” said House Minority Leader Kurt Daudt (R-Crown), pictured at right.
Senate Minority Leader David Hann (R-Eden Prairie) called the proposal “a budget expansion” requiring about $3.7 billion in new revenue. “There’s a host of things that are going to be taxed in Minnesota that were not taxed before,” he said.
Watch video of the Republican House and Senate leadership's response to the governor's budget here.
Indeed, many business-to-business services that had not been previously taxed — such as accounting, legal or consulting services — would be under Dayton’s proposal. But the governor said the new taxes would be offset by the lower across-the-board rate, which he termed “the largest sales tax rate reduction in Minnesota history.”
Dayton said Minnesota’s current sales tax rate is the seventh highest in the nation and his proposed 20 percent cut would drop the state to 27th place. He also noted Minnesota consumers now spend just 33 percent of their incomes on goods, and that expanding the sales tax base to reflect the state’s modern economy is a fair solution to stabilize state revenues.
In addition to his revenue proposals, Dayton called for funding increases across a number of areas, totaling $732 million for the 2014-2015 biennium. His budget proposes a $240 million increase in higher education funding, $118 million in K-12 funding ($52 in new money for every student in the state), and an additional $86.5 million in economic development that he says will create thousands of jobs.
The governor said that while some would claim Minnesota can not afford these expenditures, “I say that we cannot afford not to make them,” and he challenged anyone calling for less spending to tell him where specific cuts should be made.
“During much of the previous decade, governors and legislatures spent more than they raised and filled gaps with shifts, borrowing, and other one-time gimmicks, rather than facing and fixing their problems,” Dayton said. “The budget I am proposing today will end those games and gimmicks and replace them with honest accounting and responsible fiscal management.”
The governor said he expects significant tax reform could be difficult to achieve during this legislative session and that his proposal starts with two strikes against it: powerful opposition from those who benefit under the current system; and the burden of having to make up a $1 billion deficit.
He termed the proposal “a starting point,” a theme picked up on by several DFL lawmakers. House Speaker Paul Thissen (DFL-Mpls), pictured at left, who said Dayton’s proposal “is taking us in the right direction,” believes an honest discussion across the state will be the next step.
“No one should be under any illusions that this budget that was introduced today is going to be the budget that is introduced into law,” Thissen said. “It’s going to go through the legislative process.”
Watch video of the DFL House and Senate leadership's response here.
House Majority Leader Erin Murphy (DFL-St.Paul) said there may be disagreements within her caucus on particular points, “but that’s what’s supposed to happen in a legislative and deliberative body. I’m very proud the governor put forth a bold budget proposal that I think speaks to our values as Minnesotans.”
Some of the governor’s other proposals include:
• Reducing the corporate tax rate from 9.8 percent to 8.4 percent, dropping Minnesota’s rate from fourth to 12th highest in the nation;
• raising the cigarette tax 94 cents per pack;
• extending the sales tax to clothing costing more than $100;
• increasing local government aid $80 million a year and county program aid $40 million per year; and
• increasing funding for special education by $125 million.
- Jonathan Mohr
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