Gov. Mark Dayton on Tuesday proposed upending Minnesota's budget system by charging more income tax on those making more than $150,000 a year and lowering and broadening the sales tax, while giving the state a boosted early childhood education program and increased spending on higher education in exchange.
Dayton will have a DFL-controlled Legislature to work with as tries to convince the state his ideas are right but it will still be a heavy haul. Some lawmakers and interest groups will rally for greater investments in cherished programs, while others will upbraid the governor for pushing taxes that they believe could harm businesses.
"I expect that significant tax reform will be very difficult to achieve in this legislative session. My proposal starts with two strikes against it. First it will face powerful opposition from many of those individuals and businesses, who benefit under the existing system. Second, it carries the added burden of making up a one billion deficit," the governor will say, according to his prepared remarks.
The Governor's proposal would give homeowners a rebate for the first $500 of property tax they pay this year, cut the corporate tax rate to 8.4 percent (from 9.8 percent) and freeze property taxes on business. At the same time, he proposed collecting sales tax on online sales, known as the Amazon tax, increasing the taxes on tobacco and charging, for the first time, sales taxes on clothing worth more than $100 per item.
His proposal would drop the sales tax rate from 6.875 percent to 5.5 percent.
For decades, groups that have studied the state's sales tax have said it is too high and at the same time, too narrow, missing out on applying the tax on goods that are taxed on other states. Former Gov. Jesse Ventura, like Dayton, proposed changing that. Democrats and Republicans objected to Ventura's plan, eventually killing it.
Dayton, who campaigned pledging to "tax the rich," is proposing to raise the top level income tax to 9.85 percent from 7.85 percent on married couples earning more than $250,000 a year and single people earning more than $150,000 a year. About 53,000 Minnesotans would be charged the higher rates for income above those limits if the Legislature approves his budget.
The Democratic governor also backed a new local sales tax increase in the seven county metro area to pay for a Southwest light rail line and pay for more bus and rail systems across the region.
DFL leaders reacted positively to the goals while not endorsing every proposal. GOP leaders said Dayton is proposing raising taxes too high for goals that are unclear.
The new revenue would allow Dayton to pump more money into early-childhood education, all-day kindergarten, K-12 classrooms and higher education. He proposed $80 million each for tuition grant funding, for the state college system and for the University of Minnesota, subject to a review of the U's spending policies.
Cities and counties, who have complained of cuts for years and the impact on property taxes, would get a boost in funding under the plan. A $1.1 billion debt to schools would not be fully repaid under the Dayton plan until 2017.
Dayton is also reviving his plan to extend the income tax to "snowbirds," people with homes in the state who spend much of the year in warmer climes.
House Minority Leader Kurt Daudt, R-Crown, complained that Dayton's proposal does not solve the problem of the debt to schools, known as the school shift. "This budget punts the shift," he said. Added Senate Minority Leader David Hann, R-Eden Prairie: "Everybody's going to pay."
DFL leaders praised Dayton's goals and his attempt to honestly address the problem of recurring deficits. Senate Majority Leader Tom Bakk, DFL-Cook, said while he believed extending the sales tax to most clothing purchases was "the right policy," he believe it will be a "steep hill to climb" to get it passed.