Dayton calls for income tax hikePublished 10:24am Wednesday, January 23, 2013
ST. PAUL — Haircuts, car repairs, downloaded novels, lawyer bills and pricey clothes are just a few of the purchases that Gov. Mark Dayton said Tuesday should be newly subject to Minnesota’s sales tax as part of a plan to boost state tax revenue by $2.1 billion.
The sales tax rate overall would fall, part of a proposed retooling of Minnesota’s tax system that Dayton argues would make it fairer. The Democratic governor’s $38 billion budget would eliminate a deficit and increase spending on public schools, higher education and job-creation programs. Dayton proposes paying for it with more money from sales taxes, an income tax hike on the state’s wealthiest residents and higher cigarette taxes.
“I’m not out to raise anybody’s taxes,” Dayton said, adding that most middle-class Minnesotans wouldn’t wind up with a greater overall tax burden. “I’m out to raise enough revenue to do what’s right for Minnesota.”
Dayton’s template includes property tax relief for all homeowners and farmers in the form of a $500 yearly rebate. He also pitched a reduction in corporate tax rates to 8.4 percent from the current 9.8 percent, while closing some tax loopholes that benefit businesses.
Dayton campaigned for governor in 2010 on a vow to raise income taxes on the wealthy, but Republican legislative majorities thwarted that goal in the first two years of his term. Democrats now control the state House and Senate, improving the chances that much in his budget will be enacted. But parts of it may still be a tough sell as lawmakers start a months-long process of review, and while DFL leaders offered strong general support for Dayton’s budget, they didn’t predict what would survive.
Republican legislative leaders, stuck in the minority, were left to issue warnings. “Get prepared. Everything is going to get more expensive,” said Senate Minority Leader David Hann, R-Eden Prairie.
Dayton said lawmakers who think he spends too much should propose specific cuts, but none was immediately forthcoming from GOP leaders.
More items would be subject to the state sales tax under Dayton’s plan, but the current rate of 6.875 percent would be cut to 5.5 percent. The Dayton administration said that would take Minnesota from 7th highest sales tax rate to 27th among the states.
Minnesota would lose its longtime distinction as one of the few states that doesn’t tax clothing, but Dayton would apply it only to items priced at $100 and up — meaning $120 pair of pants would be taxed, but two $60 pairs would not. The entire $120 would be taxed.
The sales tax would be added to many services not currently taxed, including the services of lawyers and accountants, business support services, specialized design, car repairs and hair salons, and purchases made over the Internet.
Mike Hickey, state director of the National Federation of Independent Business, warned that the expanded sales tax would be most onerous to businesses, which would have to pay a range of taxes they don’t now. Some could decide to forego hiring public relations firms, computer consultants or accountants, he said. But Hickey predicted the added costs would mostly trickle down to customers.
“They’ll certainly try to pass it on through a higher cost on a good or service,” Hickey said.
House Minority Leader Kurt Daudt, R-Crown, suggested that applying sales tax to services would make businesses head for neighboring states, calling it “a budget for a better Wisconsin.”
What’s in it for Freeborn County?
Freeborn County impact of Gov. Mark Dayton’s budget proposal
• All Freeborn County homeowners would get a $500 property tax rebate.
• Albert Lea schools would receive $416 more per student.
• Freeborn County homeowners would see an 11 percent property tax decrease.
• Freeborn County businesses will see a 2 percent property tax decrease.
• The 809 Riverland Community College students who receive state grant funding would receive an average of $300 in additional funding.
— Governor’s Office