Gov. Mark Dayton will stick with his proposed tax hike on upper-income Minnesotans and a proposed increase in cigarette taxes when he issues his revised budget plan, he said during an appearance to the Minnesotra Chamber of Commerce Wednesday.

"I'm not going to back off on top earners," Dayton said. "We need the revenue. I don't know how else we get it. I believe in it. I believe it's right, I believe it's fair."

Dayton is expected to announce his full list of budget revisions on Thursday.

In his initial budget plan last January, Dayton proposed an income tax increase on the top two-percent of earners. He would do so by creating a new top tier in the income tax rate for joint filers with taxable income above $250,000.

He has agreed to jettison another key element of the plan -- to lower the sales tax rate while extending the tax to consumer and business services and some clolthing purchases. He said that means he will not be able to lower the corporate income tax rate or provide homeowners with a property tax rebate, as he had originally proposed.

But he does plan to keep his proposal for a cigarette tax increase, he said, and will propose closing some business tax loopholes. He said while he will continue to propose closing the "snowbird" loophole for part-year residents, he does not expect that to pass.

All in all, he told the chamber, his revised budget will produce $1.8 billion in new revenues in the next biennium, which can offset the projected $627 million defict and "make significant new investments to improve education at all levels." He said he will continue to seek additional funding for early-childhood education, all-day kindergaretn and higher education.

In his appearance before the chamber, Dayton defended the state's tax rates and spending levels and criticized the Chamber and business leaders for bashing Minnesota's business climate. He described a meeting he had with business leaders in which their message was, "Minnesota is a bad place to do business, and I threaten to make it worse."

Dayton distributed a series of reports that, he said, showed how the state's tax and spending levels have declined compared to other states. He said low-tax states do not have a good record in producing economic growth or high per-capita income. He said a "balanced approach," that includes tax hikes that support public education, has given Minnesota an advantage.

He also accused business leaders of ramping up criticism since he took office. "Evidently, in your view, spending reform is only needed when a democrat's governor," Dayton said.

In response, Chamber President David Olson said he was "a little surprised at how defensive" Dayton was. He said he he appreciated the fact that Dayton canceled the sales-tax expansion. "We give him credit -- he listened to our members," he said. He denied that the Chamber has ramped up its criticism since Dayton took office, calling that "completely not true."


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