Berwyn Lapesey blog

Minn.'s Dayton wants to tax wealthy to fix deficit

ST. PAUL, Minn. – Gov. Mark Dayton looked to the wealthy to erase about half of a $6.2 billion state budget deficit on Tuesday, proposing a new top tax bracket and a temporary income surtax that together would give Minnesota the nation's highest income tax rate.

The Democratic governor's plan would raise nearly $2.9 billion from the top 5 percent of taxpayers, including a new property tax on homes valued at more than $1 million.

The tax increases and spending cuts are contained in Dayton's proposal for a two-year, $37 billion budget that guides more money into education but could also cost about 800 state workers their jobs. It would also increase taxes on health care providers and corporations with foreign operations, while cutting almost $1 billion in spending for programs including MinnesotaCare health care and nursing homes.

"This is a very tough budget for very hard economic times," Dayton said.

Dayton campaigned on raising income taxes on the wealthy. His tax plan would impose a new fourth bracket of 10.95 percent for single filers making $85,000 and up in taxable income and couples who make more than $150,000. It tacks another 3 percent surtax on people with $500,000 or more in taxable income for the next three years, going beyond what he talked about as a candidate last year.

Documents from the state Revenue Department said the tax increases would be partially blunted by federal tax reductions approved in December. Someone at the bottom end of the new tax bracket could expect to pay $139 more per year in state income tax while a couple with $1 million in taxable income could expect a $37,000 hit, according to the calculations.

The conservative Tax Foundation ranks Minnesota and New York as tied for the country's eighth-highest tax income rate currently. Minnesota's current top tax rate of 7.85 percent applies to taxable incomes starting at $75,000 for individuals and $132,000 for couples.

Dayton said his proposal would shield 95 percent of state taxpayers from tax increases, while making the top earners pay a proportionate share of income in state and local taxes. The plan would restore recent levels of state aid to cities and counties, which Dayton said would help stave off local property tax increases.

Top Republican lawmakers gave the new income taxes zero chance of passing the GOP-controlled Legislature.

"I don't want to say it's dead on arrival. I don't think it has much of a heartbeat," said Deputy Senate Majority Leader Geoff Michel, R-Edina.

House Speaker Kurt Zellers said the permanent and temporary income tax increases would shoot Minnesota past Hawaii and Oregon for a dubious distinction for the highest tax rate, causing business leaders and others to flinch.

"This is a feeble and pathetic attempt at going back in time to raise taxes and increase spending," said Zellers, R-Maple Grove.

Democratic legislative leaders praised Dayton's approach but wouldn't commit to voting for the tax increases.

Dayton's budget would also cancel $950 million in planned spending, eliminating state-subsidized MinnesotaCare health coverage for 7,200 adults above a certain income level and cut nursing home reimbursements 2 percent. Schools would wait three more years for $1.4 billion in aid delayed as part of last year's budget fix. The state work force would shrink by 6 percent.

But general fund spending on education would get a slight bump, with Dayton sending more money to optional all-day kindergarten for poor students.