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Revised Dayton budget keeps investment priorities, drops controversial tax changes

MinnPost photo by James Nord
“I believe this proposal is the responsible, balanced budget the people of Minnesota deserve,” said Gov. Mark Dayton.

Gov. Mark Dayton dropped sweeping sales tax changes from his updated budget proposal released Thursday, but said he protected his goals of making Minnesota’s tax system less regressive and investing in education and economic development.

As expected, Dayton killed both the ambitious $2 billion sales tax overhaul he initially proposed — and his plan for $1.4 billion in property tax rebates.

The governor’s updated $37.9 billion budget contains much of the same spending as his original proposal.

It also includes a fourth-tier income tax on the wealthy, an end to certain corporate tax loopholes and a tobacco tax hike.

“I believe this proposal is the responsible, balanced budget the people of Minnesota deserve,” Dayton told reporters at a Thursday press conference. “There are no shifts, borrowing or other gimmicks to balance it. Just honest, straightforward accounting.”

The governor’s revenue hikes total roughly $1.8 billion — down from more than $3.5 billion in his previous proposal — which allowed Dayton to keep his spending priorities and fill in the state’s projected $627 million deficit for the next two years.

This session’s serious budget negotiations are nearly set to begin. It’s now up to the DFL majorities in the Legislature to shape their own budget proposal, and the Democratic leadership said they would roll out lawmakers’ spending targets next week.

Democrats didn’t have a press event after the governor outlined his new budget plan but did offer their views in writing.

“Today the Governor reinforced our shared commitment to work together on passing a fair and honest budget that puts the last decade of deficits and borrowing behind us, and moves Minnesota forward on the path to a growing middle class and long-term economic prosperity,” Senate Majority Leader Tom Bakk said in a statement Thursday afternoon.

Lawmakers hope to begin passing budget bills in April.

This is the second shakeup to Dayton’s budget proposal. He proposed more modest revisions in response to the February economic forecast two weeks ago, before dropping the unpopular tax on business-to-business services.

“During that time, it has also become clear to me that the broad tax reform which I had proposed lacks the broad public and legislative support to be enacted,” Dayton said.

While the governor admitted the new plan isn’t as grand as his initial recommendation — Democrats billed it as a bold vision for the future of the state — the governor said he bowed to public opinion on expanding the state sales tax to consumer services, business-to business-services and certain clothing.

“It’s not as bold as it was before,” Dayton said jokingly. “We talked about plan A, B and C. This is plan B+, but it’s one that has legislative support, public support.”

DFL leaders were lukewarm in their support of Dayton’s ambitious sales tax overhaul, which would have expanded its base while significantly lowering the rate. It’s unclear if parts of the plan will surface again, and the governor declined to say if he would veto such a package.

Despite the blow to his proposal, Dayton said his opponents — including Republicans and business groups — support many of the investments he’s proposed, even if they don’t like the taxes necessary to fund them.

“Just saying no to tax increases is not a budget plan. It’s not responsible,” he said. “Those who don’t want to pay a single dollar more in taxes need to own up to the responsibility to tell us what are the consequences of that.”

Dayton’s proposed investments include pumping $640 million into early, K-12 and higher education, $120 million in city and county aid for property tax relief, $86 million for economic development and middle-class tax credits that the governor tentatively outlined after the February forecast.

Even with those significant spending boosts, the revenue drop forced Dayton to leave out some of the key tax provisions in his January budget. He removed plans to freeze Minnesota’s statewide business property tax, lower the corporate income tax and give homeowners up to a $500 property tax rebate.

The $1.8 billion in tax increases the governor outlined on Thursday — which were included in his original proposal — include a $1.1 billion income tax hike on the top 2 percent of Minnesota’s earners, a $370 million tobacco tax increase (94 cents per pack) and $323 million in closed corporate tax loopholes.

Dayton also kept his controversial “snowbird” tax on part-year Minnesota residents in the plan out of a sense of fairness, although he said it’s unlikely to remain in the final version.

Republicans blasted Dayton’s updated budget as “Government gone wild” and “Taxapalooza.”

They urged Minnesotans to beat back the governor’s proposed income tax hike in the same way that the public opposed his business-to-business services tax. House Minority Leader Kurt Daudt said Republicans haven’t decided if they’ll offer a specific counter to Dayton’s plan.

daudt portrait
MinnPost photo by James Nord
“The governor’s original budget fell flat,” said House Minority Leader Kurt Daudt.

“I’m happy to see the governor has reeled back some of the tax proposals that he’s put forward,” Daudt said, encouraging Dayton to remove the rest of the tax hikes. “The governor’s original budget fell flat. The people didn’t like it. He’s retracted that. We’re glad to see that.”

Comments (4)

  1. Submitted by Jim Halonen on 03/14/2013 - 03:37 pm.

    What happens

    when there are no more rich people to tax? That’s right, everybody will be taxed more to keep the hefty spending going. It’s a short-term, live for today philosophy.

    • Submitted by jody rooney on 03/14/2013 - 04:12 pm.

      Hey Mr. Halonen this is not to unlike the GOP

      plan to give tax breaks to the wealthy and not cut spending you mean that short term thinking.

      Now if they would just pass the revenue portion of the bill quickly and then work on the spending portion.

      I am really tired of do nothing legislatures and Congress aren’t you.

  2. Submitted by Ray Schoch on 03/14/2013 - 07:41 pm.

    An illusion

    Mr. Daudt suffers from a common malady, “the illusion of central position.” It’s characteristic of children, in particular, and is marked by tantrums, an unwillingness to compromise and/or cooperate except on the child’s own terms, and an inflated sense of importance.

    What Mr. Daudt perceives as “…the people didn’t like it” simply means that HE didn’t like it. Mr. Daudt and “…the people” are not synonymous.

    I was not initially a Dayton fan, but he’s growing on me, and I particularly like his insistence that “…Just saying no to tax increases is not a budget plan.” He’s quite correct. The current debt issue was brought about by the previous administration, and it can’t be fixed by what is sometimes called “magical thinking.” It’s interesting to me that, when costs go up for a business, that business has to raise revenue to pay those increased costs. Taxes are a frequently-cited case of that when it’s a Republican speaking. There’s a point beyond which the business cannot continue to simply absorb those cost increases and continue to function. Does Mr. Daudt think that those same cost issues somehow don’t apply to state services? Can an increase is the cost of concrete be made NOT to apply to state roadway and building projects? If he knows a way around this, he should share it with the public. “Spend less” is not a constructive approach to this or most other statewide fiscal issues. If he wants the state to spend less on concrete, where should roads not be repaired or maintained? For how long? The state continues to grow in population, the public continues to expect — quite reasonably — that the state provide services in exchange for the public’s tax dollars. When costs go up, revenue has to go up as well, or else services have to be cut.

    As Governor Dayton has suggested, it will be much easier to take Republican objections more seriously when they produce something more substantive than “No!” Stamping his feet does not make the 3-year-old’s argument more persuasive. Where would Mr. Daudt cut? By what amount? Temporarily or permanently? If not by raising taxes, then how will he repay the hundreds of millions owed — by the state constitution’s direction — to public schools? And so on…

  3. Submitted by Bob Petersen on 03/15/2013 - 09:08 am.

    It’s the gov that’s not responsible

    This is just plain idiocy that this governor thinks we can spend our way forever. He thinks coservatives are not being responsible. This is sick given that we still have a $650MM shortfall and this money hungry governor wants to spend even way more. No matter where the money comes from, it doesn’t belong to the government. Spending other people’s money is not responsible.

    And the lowering of the sales tax to broaden what income will come in is just a facade. He, and probably many other DFLers, will eventually increase that sales tax rate in the future. After all, it started as a 2% tax long ago with promises to rescind. We all know what happened to that promise. We all get gouged even more.

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