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Forecast gives DFL legislators ‘flex’ to ‘invest’ — while dumping Dayton’s business sales tax

The relatively optimistic news may all but finish off the governor’s controversial budget plan to tax many business-to-business services.

“People understand we still have a deficit,” said House Speaker Paul Thissen. “We still have a big chunk to pay just to get back to zero.”
MinnPost photo by James Nord

On the surface, the good news contained in Thursday’s state economic forecast did nothing to mellow the positions of DFLers and Republicans over how state government should be run.

The good news is that Minnesota’s doing better than economists had forecast last year. The state’s deficit entering the next biennium, which begins July 1, will be $627 million, rather than the previously forecast $1.1 billion.

Even Gov. Mark Dayton admitted he was pleasantly surprised by those numbers.

Ironically, however,  that relatively optimistic forecast may all but finish off the most controversial aspect of the tax/budget plan the governor had put forward earlier this session, his desire to broaden the sales tax to include business-to-business services.

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Such sales taxes were to be the big reform — and the big revenue producer — in the Dayton plan. But it was also the aspect of the Dayton proposal that was under the heaviest criticism.

That criticism wasn’t just coming from Republicans and the business community. It also was coming from “moderate” DFL legislators, who shared concerns that taxing such services as accounting, legal work, advertising and information technology would stifle Minnesota’s economic growth.

Now, even though the state is still in the hole, Dayton will need less revenue to wipe out the deficit and increase funding in public education from pre-kindergarten through college.

Just a bargaining chip?

Dayton is in no hurry to pull the business-to-business tax proposal off the table, although at least some Republicans thought it was always part of the initial proposal merely as a bargaining chip.

Former House Majority Leader Matt Dean, for example, said Dayton’s business-to-business tax was “a cynical ploy.”

“I think he was proposing it just so he could act as if he was giving something up when it went nowhere,’’ Dean said recently.

If that was the case, the business-to-business tax scared many DFLers nearly as much as it has scared businesses. Now, with the new forecast, life for DFL legislators seems easier.

Perhaps, a fourth-income tax tier on Minnesota’s wealthiest and some tinkering here and there will allow them to come up with a budget that is both balanced and allows the party to make investments in education and job creation without all the angry shouts.

A new tier and some small fixes are not exactly the fundamental reform the governor has talked about making. But it sure is easier than having scores of business people trying to knock down the Capitol door.

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GOP says, ‘I told you so’

While DFLers may have been sighing in relief, there was nothing but jubilation among Republicans. They see the newest forecast as a sign that they were right all along.

“We can’t ignore why this is happening,’’ said Sen. David Thompson, R-Lakeville. “The state can increase revenue without raising taxes.’’

Rep. Kurt Daudt, the House minority leader, was even more succinct: “The policies we put in place are working.’’

Daudt went on to point out that the greatest increase in the forecast is because income tax collections are running at higher levels than previously forecast.

By not raising taxes in the past, Daudt said, “we showed we can grow the economy and create jobs.”

Daudt, who was elected in 2010 and suddenly found himself as the minority leader following the GOP election debacle in November, is growing in confidence when he speaks with reporters.

Never was he more confident than Thursday.

“I’ve got one for you,” he said to a reporter as he was leaving a news conference Thursday.

“What do you have for me?”

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REp. Kurt Daudt
MinnPost photo by James Nord
By not raising taxes in the past, Daudt said, “we showed we can grow the economy and create jobs.”

Daudt smiled. What he had was a sound bite:  “We created more revenue in an all-cuts budget than he’ll create with his all-tax budget.”

That is the stuff of excellent campaign fodder. But it’s hard to know if either party has any sort of claim to the ups and downs of the economy.

Dayton was willing to share at least a little credit with Republicans for the ever-improving economic picture in Minnesota.

Dayton: ‘Which is it?’

But he also noted that many of the Republicans who were patting themselves on the back for the slow economic recovery were often the same Republicans who were so quick to blame President Obama for all the recent economic woes.

“All last fall the Republicans were attacking the bad Obama economy,” Dayton said. “Now, they’re taking credit — which is it?”

The state’s economist, Tom Stinson, seemed to suggest that Minnesota’s economy is improving because the national economy is improving.

stinson and schowalter
MinnPost photo by James Nord
State economist Tom Stinson, left, tied Minnesota’s improving economic fortunes to those of the nation as a whole. Jim Schowalter, head of Management and Budget, at right, also detailed economic conditions.

He also said clearly that we were all spared a financial disaster because, nationally, the congressional Republicans and the president reached agreement before the country went over the so-called fiscal cliff.

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Now, at least, no matter how foolish the bickering in Washington, the worst has been avoided. Sequestration would only cause slight damage to the state’s economy, in his view.

Stinson did say — with a straight face — that “a smooth process in Washington, D.C., would help create greater growth in Minnesota.”

Of course, that scenario in contemporary politics is almost beyond imagination.

What this new forecast means in Minnesota is that we’ll at least be on familiar ground.

Republicans will have their familiar message: No new taxes.

Complex messages for DFL

DFLers will have the more complex messages to deliver, even in their own caucus meetings.

Dayton, although celebrating the brighter-than-expected forecast, was pretty up-front about his desire to push ahead in seeking more new revenue, meaning some increased taxes.

But he was carefully avoiding specifying what parts of his budget/tax proposal might change because of this forecast.

He talked of how cuts already were made in the last budget. He spoke of how there was one sector in the Minnesota economy that showed an employment decline — state government jobs.

But as he so often does, he spoke of how Minnesota once became a special place because of “investments” in education. In the last 10 years, he said, Minnesota has gone from being an education leader to an also-ran.

“My job is to understand the consequences of failing to make investments,” Dayton said.

Gov. Mark Dayton
MinnPost photo by James Nord
Gov. Mark Dayton: “My job is to understand the consequences of failing to make investments.”

Although it’s highly unlikely he’ll be able to get his own DFL legislative majorities to agree with the most controversial aspects of his tax plan, it’s just as clear that legislators will work with Dayton to put more money into education and come up with some forms of support to reduce property taxes.

Both Senate Majority Leader Tom Bakk and House Speaker Paul Thissen were mostly speaking the same language following the new forecast.

One of the points they both were trying to make is that despite the good economic news, Minnesota’s still in the hole.

“People understand we still have a deficit,” Thissen said. “We still have a big chunk to pay just to get back to zero.”

A price to pay

And Bakk chided Republicans for claiming that there’s been no price to pay for the GOP’s no-tax-increase policies.

The GOP, he said, may not have raised taxes at the state level, but their cuts at the state level created trickle-down problems for local governments, causing education cuts and property tax and college tuition increases.

But again, these messages are more complex than the GOP’s drumbeat message.

Interestingly, although there are times when the governor and the DFL leaders all march to the same drumbeat, there are some pretty clear differences as well.

Both Dayton and Thissen, for example, like the idea of a bonding bill, potentially even a pretty good-sized bonding bill this session.

Bakk, though, doesn’t seem interested in a bonding bill this session. He said he’d like to see the Legislature return to the era when bonding bills were dealt with only in the even-numbered years.

So, what was the big lesson learned on this Good News Day at the Capitol?

Was it that GOP policies work? Was it that Minnesota still needs to invest more in vital areas such as education?

No, the big lesson was just an old lesson re-learned: When there is good news in politics, everybody wants to take credit for it.