MINNEAPOLIS Jan 22 Minnesota would overhaul its
state tax system under a $37.9 billion two-year general fund
budget that Governor Mark Dayton unveiled on Tuesday.
The Democratic governor called for a drop in local property
taxes, an income tax rate increase for higher earners, a lower
corporate tax rate coupled with the closure of tax loopholes, a
cut in the sales tax rate, and a cigarette tax hike.
Minnesota would gain $2.13 billion from the tax changes,
allowing the state to eliminate a projected $1.1 billion deficit
in the fiscal 2014-2015 biennial budget, while increasing
funding for education, according to budget documents.
But Republicans, the minority party in the Legislature,
blasted the plan for increasing both spending and taxes.
"Get ready for more taxes," Senate Minority Leader David
Hann told reporters, adding that services such as oil changes
and haircuts would be subject to the sales tax.
Under Dayton's proposal, the sales tax rate would fall to
5.5 percent from 6.875 percent, while the tax base would be
broadened to include certain goods and services. For instance,
clothing is currently exempt from sales tax, but the revision
would tax clothing that costs more than $100.
Dayton and budget officials said that middle income
consumers could expect the sales tax changes to be a wash, with
the lower rate overall offsetting the broader base for the tax.
The income tax rate on single residents with taxable income
of $150,000 or more and married couples at $250,000 or more
would increase by 2 percentage points to 9.85 percent.
Minnesota's corporate tax rate would fall to 8.4 percent
from 9.8 percent, but tax breaks benefiting some businesses
would be eliminated.
Property taxes would fall by $1.4 billion in the upcoming
biennium, which begins July 1, through increased state aid to
local governments and other measures.
Minnesota would join other states in overhauling its tax
system, including Massachusetts where the governor last week
proposed an income tax rate hike and a lower sales tax rate.
Nebraska's governor proposed a plan to eliminate personal and
corporate income taxes, covering the lost revenue by ending
sales tax exemptions. Likewise Louisiana Republican Governor
Bobby Jindal called for ending the state's income tax and
corporate taxes with sales taxes compensating for lost revenue.
California voters in November approved temporary hikes in
the sales tax and in the income tax rates for the wealthy.