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Democratic leaders release budget outline; details to be negotiated

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ST. PAUL -- Minnesota political leaders have spent months preparing state budget plans, and eight days before the Legislature must adjourn for the year they announced they have reached agreement on some tax and spend guidelines.

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Included in the budget framework is that the state would not raise sales taxes on consumer goods, such as clothing, but probably would add taxes businesses pay on sales to other businesses. They plan to raise income taxes on the top 2 percent of Minnesota earners and put a surcharge on taxes paid by the richest of the rich.

Cigarette taxes would go up under the plan, and negotiators could raise taxes on alcoholic drinks, too.

“It is a budget that is going to work for Minnesota and put Minnesotans to work,” Gov. Mark Dayton said Sunday when he announced the agreement with Democratic legislative leaders on their $38 billion, two-year budget plan that aims to raise taxes $2 billion.

Dayton, Senate Majority Leader Tom Bakk, DFL-Cook, and House Speaker Paul Thissen, DFL-Minneapolis, briefed reporters on the budget deal Sunday afternoon. The Legislature must adjourn by May 20, and the trio of leaders said House-Senate conference committees will negotiate details, such as how much the various taxes would increase.

“On the tax side, the tax committee is going to work out all the details,” Bakk said.

Budget conference committees generally are made up of five representatives and five senators, mostly Democrats since they hold control of the House and Senate.

Bakk said the budget outline will make sure two Minnesota priorities are met: more money for education and property tax relief.

When Democrat Dayton released his budget plan in January, he called for higher sales taxes at the consumer and business levels. The idea produced protests from many segments, so he dropped them from a revised plan and pledged to oppose Senate efforts to revive the concept.

Dayton said there is nothing in the tax plan, other than a cigarette tax hike, “that will affect middle income taxpayers.”

However, after reporters pressed him, he admitted that “any tax on business, economists will say, could filter down.”

Eventually, he added about the middle class paying more: “I can’t say they won’t.”

Some of the guidelines Dayton, Bakk and Thissen said they are passing to conference committees include:

–- Education at all levels would receive $725 million more than under the current two-year budget.

-- The sales tax would not rise on consumer goods, including clothing, but businesses could pay sales tax on goods sold to other businesses.

-- Income taxes would go up on people in the top 2 percent of Minnesota earners, couples with $250,000 or more annual taxable income and individuals making $150,000 or more.

-- An income tax surcharge would be added for Minnesota’s richest of the rich, with proceeds going to help repay money the state has borrowed from school districts. The level of the surcharge would not be decided until the current budget ends June 30.

-- Cigarette taxes would rise and taxes on alcoholic drinks also could go up.

-- Some business tax breaks would disappear.

-- All-day kindergarten would be funded across the state.

-- The state would spend $400 million in property tax relief, such as by increasing aid sent to local governments.

Thissen said legislative pay could be raised under the budget, but the leaders did not make that decision. There also was no decision on whether to raise the gasoline tax, as the Senate voted last week.

Also awaiting a decision is how to back up lagging Vikings stadium construction funding.

The three leaders said the tax conference committee will decide the stadium issue, but Dayton said that “we have a couple ideas.”

Taxes on electronic pulltabs are far short of expectations, and there has been a demand from legislators and others to find a more reliable source of funds.

“We are going to get a stable source that is more than sufficient,” Dayton promised, without giving a hint about how that might look.

An $800 million public works funding bill, to be financed by the state selling bonds, was included in the budget framework.

House Minority Leader Kurt Daudt, R-Crown, said Republicans are not interested in that large of a bonding bill. Many Republicans have said they support renovation work on the Capitol building, but little else this year.

Daudt and Senate Minority Leader David Hann, R-Eden Prairie, said that when all Democratic-Farmer-Labor taxes are added up they could approach $3 billion in the next two-year budget cycle.

If Democrats vote together, Republicans do not have the votes to stop any spending or tax bill other than bonding.

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Don Davis
Don Davis has been the Forum Communications Minnesota Capitol Bureau chief since 2001, covering state government and politics for two dozen newspapers in the state. Don also blogs at Capital Chatter on Areavoices.
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