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Gov. Dayton faces a tough sell on far-reaching budget ideas

Initial reactions to the Dayton budget underscore the reality that nothing comes harder than change.

Gov. Mark Dayton knew in advance how his ideas to create what he calls “a better Minnesota” would be greeted.
Minnesota House of Representatives Public Information Services

After spending months painfully putting together a budget and tax reform, Gov. Mark Dayton needs only to sell what he and his administration have created.

But there’s no part of the proposed changes that will be easy to sell.

Initial responses to the Dayton effort, which would raise about $2 billion in new revenue, underscore the reality that nothing comes harder than change.

Here’s what Dayton has going for him: He has much higher approval ratings than the Legislature. He has a bully pulpit, which he will use. He has a surprisingly transparent plan: a fourth income tax tier, a lower/broader sales tax and, to sweeten the pot, $500 for every homeowner in the state as a form of relief from property taxes that have soared in the last decade.

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Here’s what he has going against him: Republicans, business interests ranging from big companies to corner barber shops, his recovery from back surgery, members of his own party who on Tuesday were praising the governor’s “bold ideas” while tap-dancing around the proposals.

‘Bold ideas’ quickly draw critics

Dayton knew in advance how his ideas to create what he calls “a better Minnesota” would be greeted.

“Devastating,” Dayton predicted the critics would say. “Ruinous. I’ve heard this for 30 years.”

Need an example? Dayton’s plan to broaden the sales tax to include services brought an instant whine from the state bar association’s president, Robert Enger.

Enger praised the goal of tax reform, but not taxing legal services. “A misery tax,” Enger said in the sort of self-serving statement that’s going to be rumbling through the halls of the Capitol in the coming months.

“Taxing legal services will harm the middle class,” Enger said.

Many probably didn’t know that the state’s attorneys were so interested in the middle class.

 Kurt Daudt, the Republican’s brand-new minority leader, came up with a new version of the old “ruinous’’ refrain.

“This budget is for a better Wisconsin, because that’s where the jobs will go,” Daudt said.

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(It should be noted that DFLers have hopes that Daudt will be more moderate than the GOP leaders who preceded him.)

GOP reaction predictable

Credit the Republicans with ho-hum predictability. Neither Daudt nor Sen. David Hann, the Senate’s new minority leader, could find anything positive in the proposal, even though it calls for a 14 percent corporate tax rate, which Dayton claims is the largest decrease in 26 years. The cut would be paid for by eliminating a host of loopholes enjoyed by a small number of powerful businesses.

Dayton challenged Republicans — and those in his own party — to come forward with better ideas if they have them.

Neither Hann nor Daudt was interested in accepting any part of that challenge.

“We don’t have the gavels,” said Hann of the power that comes with being in the majority.

Of course, they did have the gavels for two years and ended up being stripped of power by the public. However, to this day, the Republicans are claiming they did a great job of managing state government. They’re still talking about the surplus they left in the coffers. (It’s a surplus that, to most people, looks like a $1 billion deficit, not counting school fund shifts and other gimmicks.)

Long and short of it, Dayton’s going to get only heated rhetoric from the GOP.

 “What’s the big thing we’re going to gain?” was Hann’s question.

He meant that derisively.

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Two big things

But Dayton and even squishy DFL legislators say that the plan delivers two big things to Minnesotans: more money for K-12 education ($300 million more in the coming biennium) and a lowering of property taxes, through the $500 property tax rebate.

Most of all, the governor says, his plan would put the budget in sustainability mode, rather than the constant state of crises of the last decade.

Presumably, if he wasn’t still in recovery from back surgery, Dayton would have left the Capitol late Tuesday to fly around the state to sell, sell, sell.

As it is, his staff has made it clear that the governor will take his case to the people. There’s not a newspaper editor or newscaster in the state who won’t have an opportunity to have a phone conversation with the governor about this plan.

Already, Dayton says that this budget plan is a product of about 150 meetings that Revenue Commissioner Myron Frans had with Minnesotans from across the state in recent months.

“Tax reform has strong support from an ever-increasing number of Minnesotans who believe the current system is unfair to them,” Dayton said. “Most of them are right.”

Dayton and Frans make the claim that most Minnesotans — 98 percent or so — will benefit from the changes in the tax system. Income taxes on the 98 percent won’t increase, and Frans says studies show that the sales tax changes overall will not affect everyday Minnesotans. Yes, they will have to pay a tax for a haircut. But the overall rate paid on most goods will decrease to 5.5 percent from 6.85 per cent. And, of course, there’ll be that $500 property tax check from the state, year after year after year.

That’s the plan, one filled with other goodies to benefit most Minnesotans. But the costs that businesses will pay to purchase services are where the real new revenue is to be created, and Republicans are going to argue that those costs will be passed on to consumers.

Truth be told, DFL legislators are nervous about that, too. In fact, DFL leaders are just plain nervous. They’re only days back in power — much of their power the result of victories by “business-friendly” suburban moderates.

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Deluge of data sheets

It’s clear that Dayton will do everything he can to assure DFL legislators that “the people” are on his side. His office is going to release a deluge of “personalized” data sheets on the impact of his proposals in counties across the state.

Example — Dayton’s budget proposal for Moorhead: $500 property tax rebate for all homeowners. 0.7 percent of taxpayers in Clay County will be in the new fourth tier. $314 in new funding per student in Moorhead schools …

But while the governor’s office is spinning, the governor is going to have to do a whole lot of hand holding.

It was interesting to watch the likes of Senate Majority Leader Tom Bakk and House Speaker Paul Thissen dance around the governor’s proposal. Both praised the governor’s “boldness.”

“I haven’t seen this kind of leadership since Rudy Perpich,” said Bakk.

“The governor delivered on what he said he’d deliver,” said Thissen. “He’s laying out choices for Minnesotans. That’s not been done for a long time.”

OK, OK, that’s nice. But is this the sort of plan DFLers can rally around?

There was hemming. And hawing. And more hemming.

Bakk wants to talk to some CEOs. Thissen wants to listen to Minnesotans. Then, they essentially said, “Get back to us in April … and we’ll have a budget.”

Dayton’s DFL challenge

So Dayton’s final challenge will be with his own party. He is not the first governor to suggest that the sales tax should be reshaped. That’s an idea that’s been floating around for decades but, in the end, dies for all sorts of reasons.

Dayton recalled that Perpich, in the 1980s, attempted to put a sales tax on the newsprint that newspapers purchased. Newspaper publishers, waving a First Amendment banner, had a fit.

Dayton recalled Perpich at the end of that losing fight saying, “I won’t try that again.”

His refusal to back down from supporting the Vikings stadium bill last session shows that Dayton is made of stern stuff.

He has a good amount of data on his side.

There are studies showing that Minnesota has fallen from 10th in the nation in per-pupil K-12 spending to 20th.

Other studies show that the sales tax system is antiquated. For example, a half century ago, Minnesotans spent two-thirds of their disposable income on purchasing goods and one-third on services, Frans said. Now the total reverse is true. Yet, our sales tax system still reflects the long-gone spending habits.

Dayton also points out that there is almost no correlation between job growth and tax climate. South Dakota, for example, is 51st in taxes and 44th in job growth.

But he’s seeking change.

Given a chance, legislators will make a lot of noise and fill bills with exclusions and exceptions and hold all-night hearings. But transparent change makes them very, very nervous.