A proposal to expand the state's sales tax to include clothing cleared its first committee hearing Thursday, but not before a display of the politics of a potentially unpopular tax increase during an election year.
The Senate division of education budget and policy voted unanimously to forward the bill to the full Finance Committee, but without any recommendation. The bill's author, Senate Tax Committee Chairman Tom Bakk, asked the subcommittee forward the bill without an up-or-down vote to protect senators in tough re-election battles from opponents who might take aim at those who supported a tax increase. "I don't want them hammering on someone in a vulnerable district," said Bakk, who is running for governor. Bakk said his goal is to get the legislation to his tax committee for a broad discussion about tax policy. Even if Bakk gets his wish, this probably won't be the year the state expands the sales tax. Gov. Tim Pawlenty, who has held firm to his pledge to not raise taxes, has said he doesn't support the plan. Under Bakk's plan, the state would begin taxing clothing sales July 1, producing an additional $257 million the first year. That money would be used solely to help erase the state's $1 billion budget deficit for the remainder of this budget cycle. After that, the state's sales tax rate would go down to 6.25 percent from 6.5 percent but still produce an extra $120 million annually. For the next decade, that money would be used to repay the $1.2 billion in K-12 aid that Pawlenty delayed in unilateral budget cuts and payment deferrals imposed last summer. Once schools are made whole, the overall sales tax rate drops to 6 percent. Assistant Senate Minority Leader Geoff Michel, R-Edina, said the dire economy is the worst time to increase taxes. He is worried about the impact on retailers in border communities and the Mall of America. "It's kicking retailers when they are already down," he said. Some senators on the committee were concerned the bill would include taxation of second-hand clothing, which could hurt low-income Minnesotans. Bakk said he'd consider exempting second-hand clothing, but that could slightly extend how long it takes to repay schools. Bakk said he's also open to creating a few sales tax holidays each year, an idea popular in other states, like Florida. In those states, the governor chooses a few days each year when no sales taxes are collected. Bakk said without his proposal, there's no plan to ensure schools get repaid. The latest budget forecast showed the state faces a $7 billion deficit through the 2013 budget cycle. "I am just trying to start the conversation," he said. "Are we going to pay back schools, or not? If not this plan, then what?"
