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The governor is also proposing to streamline business taxes to make them square with federal laws, vastly simplifying record-keeping for small businesses.
In a reversal from a year ago, Dayton wants to do away with a much-criticized new sales tax on the repair and maintenance of farm equipment. He is also seeking greater tax breaks for start-up businesses and entrepreneurs.
About half of Dayton’s tax relief would undo increases DFLers imposed last year to eliminate a projected deficit of more than $600 million, repay debt to public schools and increase money for education.
Dayton said those choices were prudent given the circumstances, but the state’s strong economic growth now offers a chance to make the tax system fairer.
“For those people who say we are not using wisdom in our midcourse correction based on changing circumstances, they are not in touch with reality,” Dayton said.
Factoring in an election year
The windfall is adding a dose of election-year drama to the legislative session — Dayton and all the House members face voters in November.
By eliminating the business sales taxes, Dayton and DFLers would diminish what has been a central argument by Republicans, who are trying to leverage anger over those taxes on the campaign trail.
The strength of the state’s recovery has allowed it to refill depleted budget reserves and pay back nearly $3 billion owed to public schools. For the first time in more than a decade, legislators have their first true surplus to manage. The extra money brings advantages but comes with potential headaches as legislative leaders feel pressure from cash-strapped organizations that rely on state funding.
“There are a lot of needs out there that I am not addressing and there are people who are going to be unhappy with that, and I regret that,” Dayton said.
The governor’s proposal seeks to modify the estate tax and eliminate the gift tax, which has been widely criticized. He would double the exemption on the estate tax, up to $2 million. Minnesota would no longer be one of the few states to impose a gift tax.
The governor is seeking some new spending, about $162 million. Much of that money would go to raises for state-paid health care workers and extra money for low-income heating assistance.
Reacting to reports that Minnesota schoolchildren were being denied hot lunches because they had no money to pay for them, Dayton has said he wants to set aside $3.5 million to ensure that no longer happens.
He would use the remaining $455 million to boost budget reserves to $1 billion, as recommended by many economists.
Minnesota Management and Budget Commissioner Jim Schowalter has said that level of reserves would give the state a better cushion in the next downturn.
Staff writers Abby Simons and Rachel E. Stassen-Berger contributed to this report.
Baird Helgeson • 651-925-5044