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Dayton mulls budget proposal tweaks after improved outlook

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State of the State
Minnesota Gov. Mark Dayton enters the House chamber to deliver his state of the state address Wednesday, Feb. 6, 2013 at the State Capitol in St. Paul.
MPR Photo/Jennifer Simonson

After insisting that Minnesota needs to implement higher income taxes on the wealthy, a broader-based sales tax and a tax on business services, Gov. Mark Dayton said Monday that the state's improved financial picture will allow him to go back to the drawing board and perhaps curtail some of his proposals.

State officials announced last week that the projected budget deficit lawmakers must solve this session has shrunk 40 percent to $627 million, down from the November estimate of $1.1 billion. 

Appearing on the MPR News program The Daily Circuit on Monday, the governor said the $463 million improvement could provide an opportunity for modifications in his budget, which relies on more than $1 billion in higher income taxes for the state's top earners and more than $2 billion from expanded sales taxes.

However, Dayton stuck to his assertions of recent months that his proposals would make businesses and the wealthy pay more of their "fair share" of taxes and ensure that average Minnesotans pay less. The governor said he hasn't done a good enough job selling his tax plan, which includes a $500 property tax rebate.

Acknowledging that business groups have been critical of the plan to tax business services Dayton also said he would keep opposition to parts of his plan in mind as he revises his budget plan based on last week's revenue forecast.

"I said when I made my initial budget proposal that this was the first word on the subject, and the Legislature and I would have the last word five months later," Dayton said. "This is a conversation with Minnesotans, so I am listening very carefully and clearly hear the concerns of businesses to paying sales tax on services they buy. So, definitely, it's going to be a factor in my consideration."

But if Dayton drops the business tax proposal, he would gut his revenue plan. Even by reducing the sales tax rate by 20 percent to 5.5 percent, by adding a tax on business services, Dayton's plan would collect nearly $2.1 billion more in sales taxes than the state does now.

"I am listening very carefully and clearly hear the concerns of businesses to paying sales tax on services they buy."

Dayton offered no details on how he might rework his budget. He said that will come next week. But he did indicate that he's not interested in broadening the sales tax base simply on the backs of consumers.

"Turns out that most business people who were advocating broadening the base and who support the additional expenditures that I'm proposing in education, they want to tax consumers, but they don't want to pay taxes themselves," Dayton said. "I just think that's unfair. But that's the reality, that's how they perceive it and you know I take the business climate issues in Minnesota very seriously so we're taking a look at  it on that basis."

Among the critics of Dayton's sales tax plan is Small Business Minnesota which represents businesses with 100 or fewer employees. Audrey Britton, a spokeswoman for the group, said 98 percent of Minnesota businesses fall into that category. She said they cannot afford to start paying taxes on their legal, advertising, accounting and other bills.

Larger companies such as Target do much of that work in-house with their own employees, Britton said. But even in cases where big companies would get hit with the business sales tax, big companies are in a better position to absorb increased costs, she said.

Britton said new sales taxes could put smaller companies out of business.

"They're operating on a really tight margin and if you say, 'well, now we want you to bump your prices up 5 percent,' for some of them, they're telling us they might have to shut their doors," she said.

The question of whether businesses would pass along the tax to consumers is at the heart of Dayton's claim that he can raise money by taxing business services without hurting average Minnesotans.

Dayton acknowledged he doesn't know how his plan would shake out for businesses.

"There are some probably that are in serious financial distress," he said. "There are others who, you know, are reported to be in financial distress and then pay their outgoing temporary CEOs $12 million for eight months work. So I can't distinguish between those two categories of businesses. I do know that my goal is to have taxes be fair."

Dayton suggested that without taxing business services, he won't have enough money to give homeowners his proposed $500 property tax rebate.

LEARN MORE ABOUT THE MINNESOTA BUDGET:

Budget forecast: economy clearly mending, but only modest job growth

Minnesota budget forecast shows smaller deficit

Dayton tax overhaul gets committee hearing

Budget forecast has potential to change Capitol politics

Lawmakers seek alternatives to some of Dayton's tax ideas

Lawmakers take first look at Dayton's school funding plan