Calling for an end to the “fiscal games” and “accounting gimmicks” of the last decade, Gov. Mark Dayton released his biennial budget proposal Tuesday, which he says 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.
Some of the governor’s other proposals include the following:
- 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
- Increasing funding for special education by $125 million
“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 dispute that assertion.
Dayton’s proposed budget calls for $37.9 billion in state spending for FY 2014-2015, a statement from the Senate Republican Caucus reads. This is roughly a 7.6% increase in spending over the current FY 2012-13 budget. His new budget includes a tax increase of $3.7 billion of new or expanded taxes on Minnesotans.
“Governor Dayton's budget proposal raises taxes on all Minnesotans,” Sen. Karin Housley (R-St. Mary's Point) told Stillwater Patch on Tuesday. “Everyone – not just the rich – will pay more to grow government. Minnesotans will feel the burden of new taxes on auto services, over-the-counter drugs, health club memberships and clothing items priced over $100.
“For many Minnesotans, that's a tax on their new winter coat. With the current state of the economy, it’s disappointing to see proposed tax increases that really affect the bottom line of family budgets.”
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.
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.”
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.
“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—but said the proposal is “a starting point.”
House Speaker Paul Thissen (DFL-Mpls) said the budget Dayton introduced today is not going to be the budget that is introduced into law.
“It’s going to go through the legislative process,” Thissen said.
“I’m looking forward to working with Governor Dayton and other legislators to help manage our state’s budget in a responsible way,” Housley said. “My priority is to ensure our state government is more effective and efficient with taxpayer dollars, and that we don’t unnecessarily take dollars away from Minnesota families.”
-- Jonathan Mohr of the Minnesota House of Representatives Public Information Services contributed to this report.