‘All-star’ budget group’s plan suggests a 4% surtax on all and tax increases on alcohol and cigarettes

The “all-star” budget group formed by former Vice President Walter Mondale and ex-Gov. Arne Carlson announced Thursday how its bipartisan members would solve Minnesota’s budget deficit — and Republicans won’t be happy with the result.

Arne Carlson

MinnPost/Terry Gydesen
Arne Carlson

The “Minnesota Plan Committee,” [PDF] as Carlson dubbed it on Tuesday, would bridge Minnesota’s $5 billion shortfall through a combination of 70 percent spending cuts and 30 percent revenue increases.

The group’s budget framework [PDF] would cut $3.6 billion in projected spending and raise revenue through a variety of taxes and surcharges. They include a $250 million Health and Human Services surcharge, a $330 million tobacco tax increase, an inflationary increase in the alcohol tax and an across-the-board 4 percent income tax hike on all Minnesotans that would raise about $700 million and “sunset” in three years.

The proposal mirrors many of the plans Dayton has offered to Republicans in an effort to reach a compromise and end Minnesota’s weeklong government shutdown. It includes a tax increase on cigarettes similar to the one Dayton proposed Wednesday, as well as comparable HHS surcharges.

But, the committee’s plan is also much further reaching than Dayton’s would-be deals. It adds an additional 29 cent tax to cigarettes than the one the governor proposed (equaling Wisconsin’s) and would increase taxes on all state residents instead of only the richest.

The proposal “is not only geared at the rich. It’s geared at everybody,” said committee member Jay Kiedrowski, a senior fellow at the Humphrey Institute of Public Affairs and a former state finance commissioner.

Dayton, who said in a statement that he’s pleased with the work of the “very distinguished committee,” did take issue with the proposed across-the-board income tax increase.

Gov. Mark Dayton

MinnPost/James Nord
Gov. Mark Dayton

“I respectfully differ with the Committee on their recommendation of a 4 percent temporary income tax surcharge on all Minnesota taxpayers,” he said. “My goal has consistently been to protect most Minnesotans from either an income tax increase or a property tax increase, by raising state income taxes on only the wealthiest 2 percent of Minnesotans.”

Republicans didn’t immediately respond to the proposal but will likely disagree.

Senate Majority Leader Amy Koch previously expressed skepticism over the necessity of the group, and the GOP leaders strongly rejected Dayton’s proposal Wednesday to increase cigarette taxes. They called the offer “incredibly disappointing” and “a giant step back.”

Dayton, in turn, blasted legislative Republicans for not accepting any of the compromises he’s proposed in the last few days and called for them to bring their own counter-offer to the table.

Either way, the committee’s proposal broadly overreaches anything the GOP majorities would agree to. Because it doesn’t include a $1 billion extension of payment delays to K-12 schools, the committee proposed far more taxes than even the governor. It also spends $35.4 billion, a huge step up from the $34.2 billion that the GOP says it’s willing to spend.

In outlining their “framework for a budget solution,” Kiedrowski said one of the main focuses is that all Minnesotans should contribute to the effort.

He served on the committee with Minnetonka City Manager and a former Minnesota finance commissioner John Gunyou, former Rep. Wayne Simoneau, former Sen. Steve Dille, former Wells Fargo Chairman and CEO Jim Campbell and Affinity Capital Management President Kris Johnson..

The committee’s report also says “shifts and gimmicks” shouldn’t be used to plug a shortfall and that both spending cuts and revenues should be part of the equation.

The beginning of the group’s report states: “The budget impasse is unprecedented and must be addressed as soon as possible. Minnesotans are suffering, our reputation has been hurt, and our credit rating is endangered.”

The budget framework came out minutes before Minnesota Management and Budget Commissioner Jim Schowalter announced that a bond rating agency downgraded the state’s status from AAA to AA+.

Schowalter said in a statement that Fitch Rating, one of three agencies that reviews Minnesota’s finances, cited the same “shifts and gimmicks” as a reason for downgrading Minnesota’s rating.

“This downgrade is a sad statement for those who have worked to deliver quality public services and took our high ratings extremely seriously. The best we can do now is to resolve the budget debate in a timely fashion and in a manner that addresses our long-term financial stability,” Schowalter said.

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Comments (17)

  1. Submitted by Michael Corcoran on 07/07/2011 - 04:47 pm.

    4% ‘temporary’ surtax on all Minnesotan’s, eh?

    Aside from this proposal being laughable on its face – how many Minnesotan’s, do you suppose, would believe this tax would be temporary?

    Zip, Zilch, Nada

  2. Submitted by Richard Pecar on 07/07/2011 - 05:37 pm.

    This comment may seem off-topic, but its not. My opinion is the republicans, who seem so concerned about the national and state deficits and government’s long-term debt, are really advocating for people who have plenty of dough.

    And, no, I am not referring to Minnesotans who live on the other side of town in big fancy houses…usually our local business people. In fact, our wealthier neighbors who are in business favor the average Joe having spendable money in their pockets. It means more business, less crime, less foreclosures, more taxes being paid…ya, da, ya, da.

    The repub’s are either totally innocent, and simple-minded victims of a shrewd puppet master, or they are something more sinister.

    My take of it is, the people who are flush with big money don’t fear deficits and debt as much we are being led to believe; what they fear more than anything is more money entering our society via government and diluting their wealth. They want money to enter our economy only through trade credits, the type of credit they can extend to their customers. The more new money out there circulating, the less existing money is worth.

    Who are these rich guys? Who are the republicans really working for? In my opinion, it’s the Chinese, who hold trillions in US debt, and who don’t want their holdings diluted and devalued by deficit spending. And, OPEC sheiks who have warehouses full of U.S. cash don’t want its value diluted either.

    Can’t connect the dots? That’s okay, you will farily soon. The question is, when our citizenry does finally connect the dots, how much of the USA will remain standing? It’s Roads? Bridges? Schools? Police? Parks? Hospitals?

    How long will it take before people realize the USA already looks like its been bombed?

  3. Submitted by Nathan Roisen on 07/07/2011 - 05:46 pm.

    Michael (1) If the tax sunsets in three years, and the proposed tax increases are as onerous as the Republicans claim, then the party can do its best to convince voters to elect people who will allow it to expire.

    Really, this is what democracy is all about.

  4. Submitted by Mike Underwood on 07/07/2011 - 06:41 pm.

    So how is this 4% income tax increase fair to the poor & middle classes??? How about 2% for those two groups and 4% for the wealthier group?? Then everyone has some skin in the game.

  5. Submitted by Jim Franczyk on 07/07/2011 - 08:07 pm.

    The bipartisan Minnesota Plan Committee assembled by Vice President Mondale and Governor Carlson was right to acknowledge that all Minnesotans should contribute to the solution of the current, very serious, budget crisis. It is my problem too! I am happy to do my part. Sure an extra 4% would be tough, but knowing that taxpayers much wealthier than me are also paying 4% of their income will make it easier. Also, the committee’s recommendation to expand the scope of our sales tax system and modify its rates is an appropriate target. While it is true that the sales tax is not the most progressive method of taxation, reform here will acknowledge that consumer purchases often exceed basic needs. Taxpayers who can afford to purchase beyond their needs should expect to pay sales tax on non-essential items. Finally, the committee deserves applause for acknowledging that Minnesotans are suffering as a result of this budget impasse. Some need the services that government agencies provide. Some wage earners and self-employed persons need to ask for help from these agencies during these difficult economic times. And, the elderly, the disabled and troubled families cannot afford to have any interruption in the services they need, many of which are purchased from the private sector with public dollars. And, of course, all Minnesotans consistently need high quality roads, bridges, health care and education. Minnesota government, its employees and the private sector organizations that provide services under contract, need to get back on the job. Hopefully, the Governor and the legislators involved in budget negotiations will use the committee’s recommendations to quickly resolve their disagreements.

  6. Submitted by Steven Webster on 07/07/2011 - 08:53 pm.

    Something for everybody to like, and something for everybody to hate. That is a real compromise. It should go to the legislature to vote up or down as is. I would hope it passes!

  7. Submitted by will lynott on 07/07/2011 - 08:54 pm.

    This is nonsense. A 4% tax increase across the board? What Bu!!sh!t! So Kiedrowski thinks everybody has to pitch in? Well, here’s a news flash, Kiedrowski–the poor and the working and middle classes have ALREADY been pitching in for at least a decade (longer if we include state employees). At the same time the rich have been cleaning up.

    Everyone, please take notice that this is emphatically NOT a bipartisan commission. It’s membership is made up entirely of conservatives (and don’t get me started on Simoneau, who ran as a D only because Rs can’t get elected in Mpls). They’re doing the same thing the Rs are doing, screwing the middle class to protect the rich. Revolting.

    Thanks for sharing, guys. Now ride off into the sunset and don’t come back.

    I can’t believe Mondale would be a party to this. Another illusion gone.

  8. Submitted by James Hamilton on 07/07/2011 - 09:00 pm.

    You can argue with the details but it strikes me as a reasonable approach. But then I’ve wanted a surtax of this type since January.

  9. Submitted by Dennis Tester on 07/07/2011 - 09:20 pm.

    Richard Pecar says: “My opinion is the republicans, who seem so concerned about the national and state deficits and government’s long-term debt, are really advocating for people who have plenty of dough.”

    No, Richard, we’re advocating for a society where no one segment should have to pay the lion’s share of its costs while others do not. In a free society, the cost of government should be paid by all citizens, not just those who can best afford to pay. Everyone pays the same sales tax rate, everyone pays the same energy tax rate, everyone pays the same for a loaf of bread or a gallon of gas. The same should be true for the cost of government.

    Those who disagree aren’t interested in using income tax to pay for government, they’re interested in using taxation to level the playing field … charging some people an inordinate share while charging others virtually nothing.

    That is not the role government in a free society. I’m not rich. Neither do I smoke nor drink. But I oppose the targeting of societal minorities such as rich people or smokers as a divisive act by cowardly politicians who seek to curry favor with the majority to gain their vote on election day. When you rob Peter to pay Paul you can always count on the support of Paul. All citizens who use government services should pay the same cost of those services.

    So, no, Mr. Pecar. I’m not advocating for “people who have plenty of dough.” I’m advocating for people who are easy marks in the mob rule that’s being orchestrated by democrat politicians for political power. Human nature being what it is, I can understand why weak people blend so easily into that mob.

  10. Submitted by Richard Pecar on 03/13/2012 - 10:50 pm.

    Well Mr. Tester, we disagree.

    And make no mistake, I am no bleeding-heart tax-and-spend liberal. I voted a straight national republican ticket between 1964 to 2000, except for McGovern in 1972. I was the endorsed Republican candidate in House Distric 64A in 1988. I served a four year hitch in the USMC and was honorably discharged in 1964. I was small businessman for the whole time.

    And, I have absolutely no idea who current crop of republicans represent stand for, or what concepts they stand for?

  11. Submitted by Bruce Pomerantz on 07/07/2011 - 10:48 pm.

    Am I the only one who thinks it strange that Arne and Walter did not ask even one person known for work in the social services who has knowledge of the financial plight of the middle class and working poor to serve on this “Dim Star” committee?

    I would dearly love to see the 2009 and 2010 tax returns of these “All-Star” committee members. I’ll bet each one had an income increase of more than 4% from their 2009 income. Given that everyone one they know probably also earned 4% more, they see it as equitable to skim 4% off the top of everyone. Too bad for those of us in the middle class and working poor who have not enjoyed such increases. We count ourselves lucky if we received raises that equaled inflation.

    The end result of this master plan would be for the middle class and working poor to have less than when we started.

  12. Submitted by Patrick Wells on 07/07/2011 - 11:54 pm.

    I think that the independent group is a great idea. The independent group should speak to the chambers of commerce in the districts which oppose compromise.

  13. Submitted by Karl Struck on 07/08/2011 - 12:18 am.

    Well stated, Dennis(#9)

    While we all have seen the ramifications of our state government (mostly?) shutting down, let us at least revel in the democracy of the moment. Checks and Balances 101.

    This is an example of how we shape and decide the role of our government. I think it is fair to say that the Republicans (Koch and Zellers) are making a firm stand on the classic conservative view of a small and limited government. We are worried about the increase in taxes, increased state spending, and a growing presence of government in our everyday lives.

    Oh and one more thing… what is this nonsense about raising the taxes on alcohol and tobacco? I don’t smoke, but can we please stop social engineering a perfect society? I realize the health implications of smoking and their direct costs to the state. Then dedicate the cigarette tax to that part of the budget, don’t use it as a general fund revenue stream. Why don’t we add an additional income tax to those that don’t exercise 45 minutes three times a week?

  14. Submitted by jody rooney on 07/08/2011 - 10:22 am.

    I don’t care for the committees proposal but that is just personal preference. I can’t say it isn’t a good compromise.

    It does two things that I believe are critical. It avoids the smoke and mirrors accounting shifts and it buys time for a more reasoned approach to evaluate what works and what doesn’t.

    It is fair to reassess the success of both budgeted items and tax expenditures, i.e. tax credits and deductions to see if they have achieved their goals or need to be modified.

    It is rational to do it with data and a reasoned approach which takes time.

    Good job gentleman.

    I disagree Mr. Struck I don’t know that the Republicans are for smaller government, the federal government got much larger under GW. What they do believe is looking good on credit. Funny how the debt ceiling wasn’t an issue during the Reagan and GW years when a lot of the debt was run up.

  15. Submitted by James Hamilton on 07/08/2011 - 10:49 am.

    “A temporary 4% increase in income tax liabilities for everyone only during the biennium (Three calendar years.)”

    I’m reading this as 4% of an individual’s or household’s income tax liability, not an additional 4% of income. In other words, an $8,000 state income tax liability would be subject to a $320 surtax. This would be in line with my understanding that a $1.8 billion gap between the two budgets could be resolved by an additional $340 +/- a year per employed Minnesotan.

    Am I wrong?

  16. Submitted by steve anderson on 07/09/2011 - 08:43 am.

    If we are looking at raising more revenue then that seems to tell me that we have a spending problem. It is OK to admit that Governor Dayton. It’s the first step to recovery. Now we can cut spending and start living within our balanced budget.

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