Dayton eyes tax cuts with projected $1 billion state surplus

  • Article by: BAIRD HELGESON , Star Tribune
  • Updated: December 6, 2013 - 6:48 AM

Under the latest revenue forecast, the state could repay the last of its debt to schools and still have $825 million left.

Buoyed by news of a projected $1 billion state budget surplus, DFL Gov. Mark Dayton said Thursday he is prepared to seek millions of dollars in tax reductions.

The projected surplus is part of an economic forecast released Thursday that shows Minnesota is moving solidly into the black, with strong job and wage growth that is outpacing the national average.

“This is a great place to be,” Minnesota Management and Budget Commissioner Jim Schowalter said of a budget picture that appears to end the state’s most harrowing fiscal crisis since the Great Depression.

Dayton said he won’t make a formal proposal on tax cuts until February, when the state will get a second economic forecast and the Legislature will come back into session.

“We know we are very early in the biennium and there are a lot of uncertainties out there,” said Schowalter, head of the state budget office. “We want to make sure any changes we do make are sustainable.”

The change of fortunes allows the state to pay off the last of the $2.7 billion it borrowed from K-12 public schools while mired in recession, along with money the state borrowed from the airports fund in 2008.

That still leaves $825 million for tax breaks, more spending or other needs just as Dayton and legislators head into an election year.

Dayton would use that money to eliminate the three business sales taxes created earlier this year that have prompted blistering attacks from the business community, particularly a sales tax on warehousing services.

He’s also eyeing tax breaks for middle-income families that would eliminate the so-called marriage penalty and boost the working family tax credit. Combined, those measures could reduce state taxes for about 700,000 taxpayers.

Republicans blasted Dayton for wanting to impose tax breaks months after he and a DFL-controlled Legislature raised $2.1 billion in revenue, mostly through income tax hikes on high earners.

Senate Minority Leader David Hann said he is skeptical of Dayton’s commitment to lowering taxes eight months after raising them.

“We will help keep that promise,” said Hann, R-Eden Prairie.

In the meantime, legislators and DFL-aligned interest groups already are making their pitch for a share of the money, with many more lining up to press their case.

Growth surging

The state’s changing fortunes stem in part from economic growth that is among the best in the country.

At 4.8 percent, Minnesota’s unemployment rate is among the nation’s lowest. Every major nonfarm industry is posting gains, with the exception of manufacturing and federal employment. The state has recovered all 150,000 jobs lost during the recession years, and even the long-struggling housing industry is coming back.

In addition to surging growth, the state is just collecting more tax revenue, including from upper earners and businesses. Individual income tax collections account for $500 million of the projected surplus.

The state is also expecting improved corporate profits to contribute $2.6 billion in state taxes, about 10 percent more than predicted.

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  • MINNESOTA TOPICS: Mark Dayton

    Find the latest news and information about Mark Dayton.

  • Happy, but cautious: Gov. Mark Dayton said he didn’t “want to fall into that trap of overpromising.”

  • Republican leaders, Senate Minority Leader David Hann of Eden Prairie and House Minority Leader Kurt Daudt of Crown, looked over the budget numbers before their rebuttal presentation. The surplus “should be back in the economy,” Hann said. Daudt and other Republicans said the surplus proves DFLers raised too much in taxes.

  • Margaret Kelly, state budget director, and Jim Schowalter, commissioner of Minnesota Management and Budget, couldn’t help but smile when the new economic forecast was released on Thursday.

  • Minnesota Budget Forecast

    Fiscal year 2014-15

    $1.086 billion surplus

    Revenue up S787 million

    Spending down $247 million

    $246 million will repay K-12 schools

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