Lawmakers seek alternatives to some of Dayton's tax ideas

Governor's budget
Gov. Mark Dayton presents his budget proposal to the media Tuesday, Jan. 22, 2013 at the Department of Revenue in St. Paul. Reaction to Dayton's proposal has been mostly lukewarm, even among his fellow Democrats.
MPR File Photo/Jennifer Simonson

Since unveiling his $38 billion two-year budget plan a month ago, Gov. Mark Dayton has encouraged legislators to come up with a better alternative.

Reaction to Dayton's proposed re-tooling of sales taxes, income taxes and property taxes has been mostly lukewarm, even among his fellow Democrats. Some are already looking at possible options.

The Democrats in charge of the House and Senate tax committees have introduced bills that detail Dayton's tax proposal, which would raise about $2 billion in new revenue. State Rep. Ann Lenczewski, chair of the House Tax Committee, said she's sure the final bill will also raise revenue. But beyond that, she said it's too soon to know which provisions in the governor's plan will survive and which won't.

"We all want to see the runs on a city basis and a county basis," said Lenczewski, DFL-Bloomington. "We want to see how these things will play out for school districts. We're looking at everything, and then of course we are interested in what the business has to say about burdens they think it will impose on them."

Business owners have been pushing back against the governor's proposal to expand the state sales tax base, while lowering the rate. That's because a long list of business-to-business transactions would be taxed for the first time. State Sen. Roger Chamberlain, R-Lino Lakes, said he's heard lots of complaints.

"We will lose businesses. They like to say we won't, but I know a lot of service businesses that said they'll move across the border," Chamberlain said. "They'll go to Texas. They can easily go to Iowa, whether they go there or not. But they're very, very concerned because they will not be able to compete with other businesses that operate in other states."

State Rep. Paul Marquart, DFL-Dilworth, said he's also heard complaints, and he thinks the business-to-business sales tax is the most problematic part of the governor's plan. But as chairman of the House Education Finance Committee, he's also concerned about lessening the potential new revenue available for school funding. Marquart said he's more inclined to tweak that sales tax provision rather than scrap it.

"We will lose businesses. They like to say we won't, but I know a lot of service businesses that said they'll move across the border."

"I would be opposed to just completely throwing all of that out," he said. "I think we should take a look at it service by service and see which ones are the most egregious to business, sit down with business folks and say which ones can we live with? Because if we can live with some of these, we can build you the world's best workforce, which is going to help not only businesses but every single resident in this state."

Retail businesses have raised concerns about Dayton's plan to tax clothing items priced at $100 and above. Some lawmakers have suggested giving low-income people a credit on such purchases. Senate Majority Leader Tom Bakk has proposed a sales tax rebate for shoppers who visit Minnesota.

"I mentioned it in the context of trying to find a way to address some of the concerns with the Mall of America," said Bakk, DFL-Cook. "Because clearly they use as a marketing strategy to their international customer base the fact that they don't have to pay sales tax on clothing in Minnesota."

Adjustments are also likely in the governor's $1.4 billion proposal to give every homeowner in the state a $500 property tax refund. House Democrats have a significantly less expensive plan. They want to increase funding for an existing refund program targeted to low- and middle-income homeowners.

State Sen. Ann Rest, the chair of the Senate Tax Reform Division, said she also thinks there's a better way to provide property tax relief.

"People have a hard time going back and connecting that their taxes actually were lowered because of the property tax relief they get," said Rest, DFL-New Hope. "We're looking at ways of taking the governor's initiative and seeing if there's a way in which we can more directly relate that to, for example, the property tax statement itself."

Another difference has surfaced on cigarette taxes. A DFL-sponsored bill includes an increase of $1.60 per pack, compared to the governor plan for a 94-cent increase.

There's been relatively little discussion so far of Dayton's second attempt at an income tax increase on the wealthiest 2 percent of Minnesotans. Rest said she believes DFL lawmakers have largely accepted that increase and will ultimately endorse it.

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