Gov. Mark Dayton struck a defensive tone in front of state business leaders on Wednesday as he laid out his plan to push forward with an income tax increase on the state’s wealthiest citizens.
The Democratic governor, speaking in front of members of the Minnesota Chamber of Commerce on their day at the Capitol, outlined the broad strokes of his revised budget plan, due out this week. He said it will include about $1.8 billion in new revenue generated by an income tax increase on the top 2 percent of earners in the state and a proposed cigarette tax increase. That revenue will help balance a $627 million budget deficit, as well as allow investment in early and higher education that he said will be critical for a highly skilled workforce for Minnesota companies.
The outlines of Dayton’s revised proposal represent a considerable improvement in the eyes of business groups, who found out late last week that the governor planned to drop a proposed extension of sales taxes to business-to-business services such as legal work, accounting, and advertising. That also means the governor must radically retool his expensive property tax rebate, he said, noting that “not every homeowner” will get a rebate under his new plan.
But business leaders were still critical of the governor’s plan to raise the income tax by 2 points on the top 2 percent of earners, which would raise $1.1 billion.
Chamber President David Olson said now that the business sales taxes have been dropped, chamber members can turn their attention to lobbying against the governor’s income tax hike, which could hit some small business owners who pay their business-related taxes through their personal income taxes. “This is not just about the wealthy,” Olson said.
Dayton said the Department of Revenue calculates that only 6 percent of business owners making more than $250,000 a year will be affected by the top tier income tax increase. “You can’t govern by anecdote,” he continued. “I’m looking at the whole picture and what’s best for the entire state of Minnesota.”
Dayton also said his plan will no longer include corporate income tax cuts, but will still eliminate tax breaks for foreign operating corporations and foreign royalty subtractions. (Some prominent business lobbyists believe the Legislature will expand research-and-development tax credits as a means of partially offsetting the loss of those tax breaks.) And while his revised budget will include a so-called “snowbird” tax, he told the group that he thinks it’s ultimately “unworkable.”
Dayton was particularly terse with the Chamber crowd, who he said is now calling for spending reform but didn’t ask the same of previous administrations. “Apparently, spending reform is only needed when a Democrat is governor,” Dayton said. “We’ll cut spending every way we can. We’re not going to savage people in the process.”