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Dayton wants surplus used for tax cuts and budget reserves

The governor is proposing $600 million in tax cuts, which includes federal tax conformity and repeal of several business-to-business taxes.

Dayton said he's encouraging the House and Senate to act first on the tax reductions that they’ve agreed on, and tackle more controversial proposals later.
Copyright Minnesota House of Representatives

Gov. Mark Dayton is calling for more than $600 million in tax cuts and a big bump in the state’s reserves as part of a “mid-course correction” this session in response to Minnesota’s improving budget-surplus projections.

Democrats controlling state government enacted $2.1 billion in tax increases last session, but continuing rosy economic forecasts mean that some of the 2013 controversial measures likely will be reversed.

With predictions of a $1.2 billion surplus for the budget cycle, many Democrats are moving quickly to pass the cuts, and it has become a bipartisan priority this year.

The governor, who announced the details of his supplemental budget Thursday, is pushing for the cuts to reach his desk by mid-March. That would ensure that a new business tax on warehousing services doesn’t go into effect on April 1.

Also Thursday, the state House is likely to pass $500 million in tax cuts, including many of those in Dayton’s plan.

“Basically, Minnesotans should know that if the Legislature doesn’t act, it’s going to cost them [taxpayers] some of the tax savings I’m proposing,” Dayton said during a conference call with reporters. “There should be a mounting public pressure to do so. I’m going to keep my pressure on to do so.”

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Included in Dayton’s plan is long-awaited federal tax conformity at a price tag of about $300 million, plus roughly $230 million in business tax relief and about $80 million in other tax cuts.

The federal conformity measures including eliminating the “marriage penalty,” expanding the Working Family Tax Credit and child care credits, and upping student loan interest deductions.

The governor told reporters that he’s encouraging the House and Senate to act first on the tax reductions that they’ve agreed on. Later, Dayton said, legislators could deal with the more controversial proposals.

He said middle-class Minnesotans deserve quick relief and that any election-year gamesmanship in the two legislative bodies should come later.

It appears many lawmakers, too, want fast action.

“The Governor’s supplemental budget is a continuation of our priorities last session to build an honest budget that puts middle class Minnesotans first,” House Majority Leader Erin Murphy said in a statement after the announcement. “We will work with a sense of urgency to pass middle class tax cuts today on the House floor. We need to work quickly and together to continue building on our progress for a stronger Minnesota future.”

In addition to the warehousing tax repeal, the proposal would also eliminate business sales taxes on repair and maintenance of electronic, commercial and farm equipment and business purchases of telecommunications equipment. The Senate pushed those hikes last session.

As expected, Dayton’s tax cuts also include reductions for the not-so-middle class.  In his proposal, the gift tax would be eliminated and the estate tax exemption would increase significantly, for a combined cut of $43 million.

Dayton also wants to add $617 million to the state’s budget reserve, a move that hasn’t occurred since 2001.

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His plan also includes about $160 million in other spending, which the governor wants to limit because lawmakers passed a budget last year, that would come from the reserve. Under his proposal, that would leave the final reserve contribution at about $450 million.

Dayton said the government needs to maintain “fiscal discipline,” despite calls from special interest groups for increased funding.

“Let’s spend all the rest of it while we have it” is the wrong mindset, he said.

“This is not a budget year,” Dayton added. “It’s a year in my view to do tax cuts and build a reserve first and foremost.”