MARSHALL - Weeks after rolling out a tax-heavy budget plan, Minnesota Gov. Mark Dayton is pulling it back in dramatic fashion.
Public outcry, mainly from business owners in Minnesota, apparently got Dayton's attention, and the result is a massive about-face on business-to-business taxes and almost certainly the same for his proposal of a state sales tax to service transactions. Dropping the business services tax would eliminate the possibility of an advertising tax; it would also spell doom for Dayton's proposed $500-per-family property tax rebate.
A better-than-expected February budget forecast that saw the state's projected deficit shrink by more than 40 percent, along with some trepidation over the proposal from his own party, were indicators that Dayton's original proposed budget was sure to be amended to some point, but on Friday, the Democratic governor took it a step further, which is sure to please businesses owners and Republicans alike.
"It's a good starting point," said District 16 Sen. Gary Dahms, R-Redwood Falls. "We need to get that business-to-business tax out of there, and I applaud him for doing that. We still have a long ways to go on the sales tax, a lot of other things we need to look at."
District 17 Sen. Lyle Koenen, DFL-Clara City, said he's heard more feedback from people on business-to-business sales tax than any other piece in Dayton's original proposal.
"For him to reconsider that doesn't surprise me at all," said Koenen. "It's not just the issue to paying more taxes or what that might do to the business environment, but it's also that it's starting to look fairly complex, too, and there's some confusion on how it would get carried out."
Dahms said with a $600-plus million deficit, now is not the time to raise taxes, but Dayton apparently is sticking with his plan to tax the wealthiest Minnesotans by implementing a fourth bracket to the tax code, which Republicans say will hurt the business landscape in Minnesota. Dahms said not only is that tax not necessary, he sees it eventually trickling down to affect those who fall outside of that proposed bracket.
"You can say we're doing this on the wealthy, but whatever you do to the wealthy, not far down the road the middle-income folks will pay that also," he said. "We just can't have our middle income earners being taxed more than what they are today."
Koenen said the fourth-tier tax bracket proposal has a wide range of support. He doesn't see it as a "soak-the-rich" proposition.
"I think most see it as a fairness issue," he said. "They see this as a way to address an inequity and make the system more fair. And it does raise some money."
He's received mixed messages on the tax-the-wealthy idea - that it would be detrimental for people with small businesses, but from others, including business owners, who think it would be OK as long as it helps get the budget straightened out.
Dayton's proposal to raise the cigarette tax by 94 cents, Dahms said, is a double-edged sword. While it could work to deter younger people from smoking and could be the nudge current smokers need to give up the habit, he's concerned implementing that tax would be another blow to the lower and middle classes.
"It's a two-headed monster," said Dahms. "If you take a look at the people who get hurt most, it's the lower-income people; on the other hand we know very well that tobacco products have had a major impact on health care costs as people get older. If this helps deter people from smoking, it's a good thing."
Koenen was on the same page with Dahms concerning what is considered a regressive tax. He agreed a cigarette tax hike would hurt low-income people the most but said the more expensive it is to smoke the less likely it is that young people would take up the habit.