The standing ovation Gov. Mark Dayton received in downtown St. Paul on Wednesday came from an unlikely group: the Minnesota Chamber of Commerce, a traditional foe of any tax-thumping politician.
But Wednesday was far from ordinary. It was the Chamber’s annual Day at the Capitol, where Dayton addressed more than 600 members who were thrilled that he abandoned a much-criticized business-to-business service tax last week.
“I give the governor credit,” said Chamber President David Olson at the Crowne Plaza Hotel Wednesday. “He listened.”
Polaris Industries Inc. CEO Scott Wine even modified his prepared remarks to the Chamber after learning the governor reversed course. “That would have been incredibly damaging,” he said, referring to the business service tax.
Had it gone through, business owners would have faced taxes on all services — including legal, advertising and accounting — for the first time. Many companies feared they could not absorb that tax and would have to increase prices, enticing customers to do business in neighboring states.
While members welcomed Dayton with cheers, the tone quickly gave way to concern that Dayton’s revised budget proposal — due Thursday — will continue pushing for an unpopular 2 percent tax on the wealthy, new taxes for snowbirds and a cigarette tax.
Instead of creating new taxes to erase the $627 million deficit, Olson said more spending cuts are needed, adding that Dayton’s spending proposals had grown off the chart. “I am hard-pressed to believe that they can’t find that [$627 million to cut] without raising taxes,” Olson said. “If you spend less, you can tax less.”
Wine, who heads Polaris’ $3 billion business that makes ATVs, motorcycles and snowmobiles, said the governor’s proposal could also stifle the economy.
Taxing Minnesotans who earn more than $250,000 a year “is a job-killing tax. We cannot kid ourselves that this is just a tax on the wealthy.”
Wine and others worried that taxing wealthy residents would drive business owners and key suppliers from Minnesota. But Dayton said that argument has been presented to every Democratic governor in office since 1971. “I am not going to back off of the top earners. We need the revenue,” Dayton told reporters following his speech.
He added that his revised budget will generate $1.8 billion in new revenue in the next two years. Not only will his budget offset the $627 million deficit, it will also allow for “significant new investments” in all levels of education, especially at the preschool and kindergarten level.
While displeased with Dayton on increases, business owners walked away from Wednesday’s meeting with one fresh victory.
‘I am realistic’
Dayton is not likely to press his previously proposed tax on “snowbirds,” those former Minnesota residents who now live in the state for just 5½ months each year to avoid paying Minnesota income taxes. “It’s in my budget. But I am realistic, because of the concerns of the hospitality industry,” Dayton said. “There are areas like Brainerd and the lakes where people go for the summers.”
Those businesses say they would be hurt if snowbirds simply abandoned their summer cabins and moved completely from the state as a result of the new tax.
Dayton, however, argued that it’s an issue of fairness.“People who are very well off can take advantage of the loophole and be here for almost half the year and pay no taxes. Yet you have hardworking people who make one-tenth of what [snowbirds] make.”
Dayton said that when he proposes his revised budget Thursday, he will give up on an earlier plan to reduce the sales tax rate while expanding the reach of the tax to clothing and other consumer products. With that revenue source gone, Dayton said he won’t lower the corporate income tax rate as previously proposed. And he won’t give homeowners new property tax rebates, he said.
Olson said Dayton’s proposals pose a difficulty because corporations are frequently evaluating where to expand or recruit. Increasingly, many view Minnesota as expensive. “I was talking to the CEO of Life Time Fitness about his recruiting efforts. And he said, ‘David, I would have to pay a 10 percent premium to bring folks here, and I would not have to pay that same premium in other states. So why would I do that?’ ”
Dayton dismissed some concerns as hype. Chamber members only “hear that everything is bad. That spending is out of control and that taxes go higher. But it’s just not supported by the facts.” he said.
What they wanted to hear
Several members said they came to St. Paul to hear Dayton but also to address a host of concerns beyond tax hikes.
Jan Pöhland, who runs the six-person software firm Comparatio USA in St. Louis Park, said he was relieved by the governor’s change of heart on the service tax. “That business-to-business tax would have had a negative impact for sure,” he said.
Pöhland came to learn if any legislators supported more business and educational partnerships and training. Such programs might help him find skilled workers from Minnesota. Now, more than half his “highly trained” staff and vendors are from other states or countries.
Sheila Sumner and Keith Turner came from the Fond du Lac Tribal and Community College in Cloquet to share concerns about proposed state budget cuts. Turner is dean of students and Sumner is a counselor. Budget cuts would slash staff and ultimately hurt low-income and nontraditional students who support families while going to school. “We really don’t want to hurt our student services,” Turner said.
After the meeting at the Crowne Plaza, Chamber members boarded buses and headed to the State Capitol for an afternoon of lobbying and talks with elected officials.