Dayton Ready to Lay Out Minn. Tax, Spending Wishes

Updated: 01/22/2013 7:02 AM KSTP.com By: Jay Kolls

Governor Dayton will lay out his plan for fixing Minnesota's billion dollar deficit starting Tuesday morning.

The Governor made it no secret that he intends to try and tax the state's richest 2 percent of income earners to help balance the budget. But, political experts say the Governor might even go a bit further with suggested tax hikes. Those might include an expansion of the sales tax.

State records show when the sales tax was enacted five decades ago, two-thirds of Minnesotans spent their money on goods and only one-third on services.  So purchased goods were the focal point of the sales tax initiative. But, now state records indicate two-thirds of Minnesotans spend their money on services and one-third on goods.  Items such as legal fees, haircuts and car repairs remain untaxed.

University of Minnesota political expert Kathryn Pearson says she would not be surprised to see Gov. Dayton propose expanding the sales tax to include more services. But, Pearson says, she does not think the Governor is crazy about a sales tax on clothing because it disproportionately affects the poor.

Either way, Pearson says Republicans have made it clear they do not like any tax increases, especially on the income tax. And, Pearson says, if the GOP does compromise on tax increases in some form, they will want spending cuts in return. Governor Dayton is expected to release details of his budget proposal before 11 a.m. Tuesday.

His plan is the starting point in a tax-and-spending debate that will reach well into spring. 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 the last year examining options.
    
While the intrigue largely surrounds Dayton's tax vision, the governor also is expected to outline his spending plans for public schools, colleges, health and welfare programs, and economic development grants. Dayton campaigned in 2010 on a "no excuses, no exceptions" promise to increase spending on public education each year he was governor.
    
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 was marking Dayton's return to public view after spending the past month recuperating from spinal surgery.

The Associated Press contributed to this report.