Tax reform in Minnesota? Some other year, perhaps

Among us Legislature watchers, 2013 is sure to be remembered as the marriage equality session.

That's so even though the marriage issue consumed only about three days of official proceedings. Passion, not meeting time, determines what lingers in memory. No one present Tuesday afternoon will forget the exuberant, sun-drenched ceremony at which Gov. Mark Dayton signed the bill that makes same-sex marriage legal in Minnesota after Aug. 1.

But this was supposed to be the tax reform session — or so I thought in January.

Back then, DFLer Dayton cast himself as a tax-policy modernizer, willing to expend some personal political capital to retrofit the state tax code for today's economy.

In today's economy, the rich get richer while everybody else mostly muddles along. Dayton proposed to raise income taxes on the top 2 percent. The state's corporations face stiffer competition than ever before. Dayton proposed to reduce the corporate tax rate from fourth-highest to 12th-highest in the country. A majority of purchases are for services, not goods. Dayton proposed to apply the sales tax to clothing and services, both business and personal, and reduce the tax's overall rate.

But two months later, bruised by a pounding from Minnesota's providers of business services, Dayton's zeal to be that kind of reformer faded. He withdrew his proposal for sales tax reform — all of it, not just the parts that businesses didn't like. A corporate tax rate reduction slipped off his agenda, too.

The result is that, in all likelihood, sometime before 11:59:59 p.m. Monday the Legislature will send Dayton an income tax increase for the state's top earners. There will be a few other wrinkles, including a cigarette tax boost and (it appears at this writing) a sales tax on warehouse services, a residue of Dayton's original sales tax expansion.

• Governors get their way. When Dayton pulled the plug on sales tax reform, it was doomed, despite the Senate's best efforts to keep the consumer share of the proposal alive. He also largely prevailed on the spending side of the state budget balance sheet. A telling example: both the House and Senate DFL majorities wanted to rein in human services spending by $150 million more than Dayton first requested. When the final budget targets were released last Sunday, the "cut" number on the human-services line had been reduced from $150 million to $50 million.

It wasn't a given that Dayton would have great sway over the 2013 Legislature, even though it was back in DFL control this year after two years in Republican hands. After all, Dayton arrived in the governor's office in 2011 after a long intraparty gubernatorial contest that, in the early going, included candidates Tom Bakk and Paul Thissen, this year's Senate majority leader and House speaker, respectively. Either or both could have chosen to challenge Dayton's positions. Also, each chamber is well-populated with politicians who care more about their own political fates than the governor's. However:

• It matters who's up next. When a gubernatorial election lies just ahead, the governor and the two-year-term House are allied in mutual self-­interest. Both will be on the 2014 ballot. Both have kept a close eye on opinion polls this year. Both squelched what was left of sales tax reform after Dayton dropped his original plan.

A KSTP/Survey USA poll conducted April 19-21 turned out to be a good predictor of the choices that were ahead. Poll respondents turned thumbs up (69 percent support) on a high-income surcharge and thumbs down on expansion of the sales tax to clothing (74 percent oppose) and services such as haircuts (57 percent oppose). It's probably also telling that the same poll said 51 percent of respondents were ready for a change in marriage laws.

Through the year, Dayton and Thissen often remarked that they were bound by what they had and had not said to voters. Thissen insisted that the state's remaining $850 million IOU to schools had to be repaid promptly because last year's House DFL candidates promised that it would be. He clung to that expensive idea until the session's final days.

• When it's two against one, two wins. With larger districts, a four-year term and a richer tradition of independence, the Senate is structurally geared to be state government's incubator of reform. This was the first year of the Senate's term. Its leaders know well how antiquated tax policies are harming Minnesota's competitive position. Some of them are nearing the end of long legislative careers. They were itching to do something big.

But the Senate couldn't engineer reform alone. The best it could muster was to kill the House's proposed alcohol tax, apparently by convincing the governor that it would prove more unpopular than it was worth.

It takes at least two to win at the Capitol — and one of them generally has to be a governor. See Maxim No. 1.

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