Senate Taxes Committee Chairman Tom Bakk, DFL-Cook, this morning proposed to add clothing to the state’s sales tax in order to payback last year’s K-12 school aid shift and reduce the current budget deficit.
While expanding the sales tax base, Bakk also wants to lower the sales tax rate from 6.5 percent to 6.25 percent.
Minnesota is one of just five states that don’t tax clothing sales, and Bakk claimed that the clothing tax would be markedly less regressive than the general sales tax. According to numbers he cited, the top 10 percent of wage-earners would pay about 31 percent of the resulting tax on clothing.
The new money from taxing clothing would pay for the rate reduction, repaying the school aid shift over time and reduce the state’s general fund budget deficit by $257 million.
“This does not create new spending,” Bakk said.
After the school shift is paid back over roughly 10 years, the sales tax would be lowered yet again, to 6 percent.
Bakk noted that his proposal would be a key part of plugging the budget gap.
“This is my proposal to resolve a fourth of the [short-term deficit] problem through some revenue,” Bakk said.
Bakk, who is vying for the DFL endorsement for governor, said he would get new revenue from the income tax if here were “king for a day.” But he said the sales tax approach stands a better chance of becoming law.
“I have no interest in sending a tax bill to the governor that he is going to veto,” Bakk said.
Retail lobbying groups and Pawlenty have opposed proposals to tax clothing in previous years. Bakk wrote a letter to Pawlenty asking for his support.
The issue has been subjected to debate for decades. Most recently, the 21st Century Tax Reform Commission, which was appointed by Pawlenty, proposed expanding the sales tax base to reduce the volatility in the state’s revenue collections.
In addition to budget debates on the sales tax, the idea gets criticized for making the state’s tax system more regressive. Bakk, however, offered a chart that showed that, under his proposal, people with the lowest incomes would pay a lower share the clothing tax than they currently pay under the current sales tax regime.