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Dayton's dubious tax scheme

Two weeks ago Governor Mark Dayton released his long awaited “Tax Reform” agenda in a 45-minute presentation to the media and interested parties. In what the Governor termed major reform and “a fair tax system for all Minnesotans” he proposes to extend the sales tax to most goods and services including clothing, raise the top income tax rate by 23 percent and increase other taxes and fees by almost a half a billion dollars. The Dayton “Tax Reform” agenda is big on taxes and little on reform.

If adopted the Governor’s tax plan would make our income tax rate one of the top five in the U.S. and impose sales taxes on services that no other state in the nation taxes.

Besides the fact it’s a major tax grab, Dayton is proposing to implement tax changes that he opposed just two years ago in his campaign to become Governor. In a gubernatorial debate with his two opponents, Dayton characterized his opposition to expanding the sales tax in this manner: “Extending the sales tax to clothing…is regressive. Extending the sales tax to all consumer services, car repairs and haircuts and individual purchases of lawyers and accountants…taxing all that and turning those service businesses as tax collectors for the state is really a hornet’s nest…it’s more of a regressive tax…on middle income and working families.”

Dayton’s tax proposal also includes a gimmick to refund every homeowner $500 for property tax relief. He claims that property taxes are “the most unfair” tax, yet he has put forward zero reforms, just a refund check. Does the Governor really think cities and counties won’t increase property tax levies to absorb his proposed billion dollar buy down of property taxes? Perhaps Governor Dayton forgot that in 2001 the legislature passed property tax reforms that lowered residential property taxes an average of 25 percent statewide. Within two years, cities, counties and school districts had raised property tax levies back to their previous levels.

Governor Dayton’s tax flip-flops continue with his proposal to increase cigarette taxes. Once again, going back to his campaign rhetoric, Dayton stated: “You raise the price of a pack of cigarettes…that’s money out of the pockets of working people and poorer people, and that means kids don’t have as much to eat or have the same quality of food.” Dayton then said: “Those are addictions and I think you treat addictions as addictions and you don’t penalize the people who are dealing with them economically.” Which is it Governor Dayton, are smoker’s people with an addiction or are they just another group you want to impose higher taxes on?

As for Governor Dayton calling his proposal “tax reform.” it’s nothing new and can’t really be labeled reform. The concept of extending the state sales tax to clothing and services dates back to the seventies with Governor Perpich’s Latimer Tax Commission Report. In 2001, then Governor Jesse Ventura proposed a broadening of the sales tax in his “Big Plan.” And even Governor Pawlenty’s 21st Century Tax Reform Commission recommended a change in sales tax structure. But the difference between those previous gubernatorial tax proposals and the Tax Study Commissions of the past is those proposals decreased other taxes in order to make the plans revenue neutral, while Dayton’s sales tax plan is just a big whopping tax increase.

Extending the sales tax to business to business transactions such as legal, accounting and advertising is nothing more than a hidden tax on consumers. Yes, businesses pay the tax, but the tax is then added to the cost of the goods or services people purchase. Dayton’s sales tax plan is just another hidden tax that will fall largely on the middle class.

Dayton also claims his proposed reforms support small business growth. But to the contrary, his tax plan will hurt small businesses. Most small businesses in Minnesota won’t benefit from a reduction in the corporate tax rate because they pay their businesses taxes on their individual tax returns, which Dayton jacks up the individual tax rate by 23 percent if you make more than $150,000 in annual income.

Second, all small businesses will be paying thousands more in sales taxes on everything from legal and accounting services to advertising. Dayton’s “tax reform” will be a job killer for small business.

The scheme behind Dayton’s plan to raise taxes on all Minnesotans is to fuel the state’s chronic over spending with more than $3 billion in new revenue. Governor Dayton claims the need to raise taxes comes from continued budget shortfalls. But the fact is that in seven of the last 14 years, spending has exceeded “current resources.” Dayton’s tax plan is really a tax grab with a very thin veil of reform.

Phil Krinkie is with the Taxpayers League of Minnesota.