Dayton Proposes $2.1B More in State Taxes
Minnesota Gov. Mark Dayton on Tuesday proposed $2.1 billion more in state taxes, partly by subjecting more items to the sales tax in a tradeoff for a lowered rate.
The Democrat's proposal increases the amount owed on income above $150,000 for single filers, subjects high-end clothing to the sales tax and raises cigarette taxes.
But he also wants to cut the corporate tax and provide property tax rebates of up to $500.
"I expect that significant tax reform will be very difficult to achieve in this legislative session," Dayton said in prepared remarks. "My proposal starts with two strikes against it."
Under Dayton's plan tax increases include:
- Sales tax on high-end clothing
- Sales tax on newspaper and magazine subscriptions
- Sales tax on advertising and public relations service
- Sales tax on a wide-range of consumer services including haircuts, auto repairs and skating lessons
- A 94 cent per pack sales tax increase on cigarettes
- Income taxes would apply to snowbirds
- Tax hike on wealthy
Dayton said his plan would drop Minnesota's sales tax rate from 6.875 percent to 5.5 percent - a cut that would bring the rate to a level not seen since 1981. But people would pay for a range of services that aren't taxed now and clothing above $100 would be taxed, marking the first time Minnesota applied its sales tax to apparel.
It's all contained in a two-year plan that would fuel about $38 billion in state spending, which is about $1 billion more than the state was due to shell out.
According to Keith Hovis with the Department of Education, in fiscal year 2014, the average revenue increase over current law is $72 per student. For 2015, the average revenue increase is $339 per student. The $52 talked about was just the basic formula, according to Hovis.
For 2015, the increases range from zero for a handful of charters that currently receive very large amounts of extended time revenue to around $1,000 for some real outliers on the other end. 64% of districts and charters receive between $200 and $500 per pupil in FY 2015 over current law.
Also, additional proposed increases would be, for example:
- Special education formula increase FY 2015 of $124.8 million. Reduces unfunded special education costs (cross subsidy) by an average of $180 per student.
- All-Day kindergarten funding of $40.2 million in FY 2015 – increases funding by an average of $908 per student enrolled in a free all-day kindergarten program.
- Early learning scholarships -- $22 million per year ($44 million for the biennium)
- Teacher growth / evaluation: $10 million for the biennium provides $22 per student for districts not in the Q Comp program
- English learners: $9 million for the biennium allows these students to remain eligible for funding for 7 years rather than 5 years.
Tackling a Deficit:
Dayton's plan is the starting point in a debate likely to reach into May. At a minimum, lawmakers must plug a $1.1 billion projected deficit.
With fellow Democrats now in charge of the Legislature, Dayton's plan carries tremendous weight and a high likelihood that much of it will be enacted.
Lawmakers must approve a budget by July 1 to avoid service interruptions. Barring unexpectedly deep spending cuts, the state is expected to spend more than the $35.2 billion that it was on course to shell out in the current two-year budget.
Unlike in 2011, when a newly elected Dayton had just a couple of months to craft his recommendations, the governor has spent much of last year examining options.
Overview hearings on Dayton's budget will begin Wednesday. But lawmakers are expected to wait until March or later to begin votes on the recommendations or their substitute. In late February they will get an updated economic forecast, which will determine whether the estimated deficit they must erase is larger or smaller.
"We have the luxury of getting to see the reaction across Minnesota" before acting, said House Tax Committee Chairwoman Ann Lenczewski, DFL-Bloomington.
The budget address marks Dayton's return to public view after spending the past month recuperating from spinal surgery.
If the budget proposal is approved, the overall state sales tax rate would drop 20-percent. It's something Dayton's office says is the largest in state history.
They say Minnesota would go from the 7th highest sales tax rate to the 27th highest among U.S. states.
Click here to read a blog on the proposal from Governor Dayton's office.
(The Associated Press contributed to this report.)
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