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Dayton Proposes Sales Tax Expansion, Property Tax Rebates

Posted at: 01/22/2013 11:11 AM
Updated at: 01/22/2013 1:57 PM
By: BRIAN BAKST, Associated Press

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ST. PAUL, Minn. (AP) - Minnesota Gov. Mark Dayton hopes to raise $2.1 billion more in state taxes, partly by subjecting more items to the sales tax in a tradeoff for a lowered rate.

The Democrat's proposal Tuesday covers the waterfront in taxes. It would hike the amount owed on income above $150,000 for single filers, subject high-end clothing to the sales tax and raise cigarette taxes by 94 cents per pack. But he also wants to cut the corporate tax and provide property tax rebates of up to $500.

It's all contained in a two-year plan that would fuel about $38 billion in state spending. It includes a promise to schools to add $52 more in aid per student.

Dayton's plan is the starting point in a debate likely to reach into May.

$500 property tax rebate

Gov. Dayton is proposing a property tax rebate of up to $500 for every Minnesota homeowner.

Dayton says Minnesota government relies too much on funding from property taxes. He says it's the state's least fair tax because it must be paid regardless of homeowner's income.

His plan would give every homeowner, including farmers, a rebate of up to $500 starting with their 2013 bill, depending on their income. It also restores full funding of a property tax credit for renters.

Sales tax expansion

Gov. Dayton is proposing Minnesotans pay a lower overall sales tax rate but that it should be applied to more goods and services including clothes over $100.  Dayton's proposal would apply the sales tax to some items now exempt, but those purchases would remain e exempt if they are under $100.

More things would be subject to the state sales tax, but its overall rate would drop from the current 6.875 percent down to 5.5 percent under Dayton's proposal. That's a 20-percent decrease, which Dayton's office says is the largest in state history.

They say Minnesota would go from the 7th highest sales tax rate to the 27th highest among U.S. states.

Higher taxes above $150,000

Gov. Dayton is calling for an income tax increase on Minnesota's wealthiest citizens.

He would create a new 4th tier income tax bracket of 9.85 percent, which would apply to taxable income over $250,000 for married joint filers and single filers who earn above $150,000.

Dayton stresses the new rate would apply to only 2 percent of Minnesota taxpayers. His administration says it would raise $1.1 billion in the next budget cycle.

94-cent-a-pack cigarette tax hike

Gov. Dayton is proposing a 94-cent increase in the state's tax on a pack of cigarettes.

Dayton says he has been reluctant to raise the cigarette tax because it's among the most regressive taxes. That means it falls harder on people with low incomes. But Dayton says he thinks that is ultimately outweighed by the fact that increasing cigarette taxes has been shown to reduce the number of people who smoke.

The state's current cigarette tax rate is $1.58 a pack. Dayton says his proposed increase would make Minnesota's per-pack tax equal to Wisconsin's.

More school aid per student

Gov. Dayton wants the state to add an extra $52 per public school student to the bedrock formula that determines how much districts get.

That jump is part of a more than $600 million increase in education spending that Dayton is seeking for the state's next two-year budget.

Dayton is also pushing for more money for all-day kindergarten programs, early education scholarships and for the state's public universities and colleges.

The governor says his education investments are necessary to improve Minnesota and its economy. His plan for more education spending accounts for almost two-thirds of his proposed state spending increases.

Dayton has made funding K-12 education a top priority for his first term. He's pledged to increase funding every year in office.

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