Wisely, Minnesota Gov. Dayton drops business services tax

  • Article by: STAR TRIBUNE EDITORIAL BOARD
  • Updated: March 9, 2013 - 8:55 AM

Dropping services tax shifts debate in right direction.

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Gov. Mark Dayton

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Gov. Mark Dayton moved Friday to change the terms of the 2013 state tax reform debate for the better. To the surprise and applause of a Twin West Chamber of Commerce breakfast audience, he announced that the revised budget he will present next week will not include his original plan’s most problematic feature — an extension of the state sales tax to business services.

As the DFL governor acknowledged, he has heard a seven-week chorus of opposition to taxing a broad array of services — legal, accounting, advertising, engineering and the like. He was told that taxing such transactions would put those industries at a competitive disadvantage, while layering hidden taxes into the cost of countless consumer purchases.

To Dayton’s credit, he paid heed, and is making a timely reversal. A governor more inclined to political intrigue might have waited weeks longer in hopes of exacting concessions from his critics in the legislative session’s pressure-filled final days.

Instead, Dayton opted to clear the Legislature’s calendar of a proposal that had attracted so much opposition that it obscured his plan’s more desirable features. That allows time for more careful consideration of ideas that enjoy wider support.

The governor is expected to announce Tuesday which of his original ideas for raising state revenues still have his backing. A number of those ideas deserve to survive. Dayton suggested that his entire proposed sales tax expansion proposal could disappear. It shouldn’t. Taxing more consumer purchases, including clothing, would make the state’s overall tax structure more competitive, stable and adequate to the state’s needs.

It also would allow Dayton to slightly shrink his plan for higher income taxes for the state’s top earners. If Dayton sticks with a 9.8 percent proposed new top rate for that portion of married filers’ taxable income exceeding $250,000, he’ll face resistance from the same competition-conscious voices who balked at taxing business services.

Competitive concern should inform the state budget debate in the session’s remaining two months. But that concern must extend to the quality and sustainability of the state services that help the private sector thrive, and that have suffered through a decade of state budget distress. Dayton indicated Friday that he has that broader competitive view in his sights. That’s to his credit, too.

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