7 things to know about Minnesota governor's tax plan - KMSP-TV

7 things to know about Gov. Dayton’s tax plan

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ST. PAUL, Minn. (KMSP) -

Minnesota Gov. Mark Dayton on Tuesday proposed an additional $2.1 billion in state taxes to cut into the projected $1.1 billion deficit.

The governor's plan introduces a new income tax tier for the wealthiest Minnesotans and subjects high-end clothing to a sales tax. But the governor also wants to cut the overall sales tax rate, along with cuts to corporate taxes and a property tax rebate for all Minnesotans.

Dayton said Minnesota would drop from the 7th highest sales-taxed state to the 27th highest. He said the budget proposal doesn't raise taxes on 98 percent of Minnesotans.

"Those who say spending is too high, I challenge you to say exactly where more cuts should be made," Dayton said. "And to those who say we need to spend more, I challenge you to say exactly where the money should come from."

SALES TAX ON CLOTHING OVER $100

Dayton called for lowering the state's overall sales tax rate to 5.5 percent, but adding a sales tax to clothing items above $100. The proposal also extends the state sales tax to digital goods and e-sales.

"I have to admit, taxing clothing goes against my upbringing," Dayton said, getting a laugh from the room of reporters.

The governor predicted the $100 clothing item tax will lead to some $99.99 sales.

Food, medicine and clothing items costing less than $100 would continue to be exempt from sales tax. Burial services would also be exempt from the expanding sales tax. The governor joked, "you only get to take that exemption once."

7TH to 27TH HIGHEST TAXED STATE

Dayton said the proposed drop in the state sales tax rate to 5.5 percent would move Minnesota from 7th highest sales tax to 27th

Dayton said the new sales taxes and rate would generate $2 billion in tax revenue.

NEW INCOME TAX TIER FOR WEALTHIEST MINNESOTANS

Dayton's budget imposes a new income tax tier for the state's richest 2 percent.

Dayton's proposal carries out what's been a signature goal of his governorship. He would create a new, fourth-tier income tax bracket of 9.85%, which would apply to taxable income over $250,000 for married joint filers and single filers who earn above $150,000.

Dayton stressed the new rate would apply to only to small portion of Minnesota's taxpayers. His administration says it would raise $1.1 billion in the next budget cycle.

CORPORATE TAX CUT

Dayton also called for a 14 percent cut in Minnesota's corporate business tax rate – the largest cut in state history.

The governor proposed lowering the corporate income tax rate from 9.8 percent to 8.4 percent – a cut that would move Minnesota from the 4th highest rate to 12th.

EXTRA $52 PER STUDENT

Dayton proposed $40 million in funding for all-day kindergarten, providing access for 46,000 students. He also called for $118 million in new school funding, including $52 in new funding for every student.

That $52 per public school student will affect the bedrock formula that determines how much districts get from the state.

That jump is part of a more than $600 million total increase in education spending that Dayton is seeking for the state's next 2-year budget.

Dayton is also pushing for more money for early education scholarships and for the state's public universities and colleges.

The governor says his education investments are necessary to improve Minnesota and its economy. His plan for more education spending accounts for almost two-thirds of his proposed state spending increases.

Dayton has pledged to increase K-12 education funding every year in office.

PROPERTY TAX CUT

Dayton proposed a $500 property tax rebate for all Minnesotans, calling it a tax cut for middle-income families.

Dayton said the Minnesota government relies too much on funding from property taxes. He says it's the state's least fair tax because it must be paid regardless of a homeowner's income.

His plan would give every homeowner, including farmers, a rebate of up to $500 starting with their 2013 bill, depending on their income. It also restores full funding of a property tax credit for renters.

TOBACCO TAX HIKE: 94 CENTS PER PACK

Gov. Dayton proposed increasing cigarette and tobacco taxes to bring in an additional $370 million in revenue. The tax would raise cigarette prices by 94 cents per pack, putting Minnesota on par with Wisconsin. Minnesota's current cigarette tax rate is $1.58 per pack.

Dayton explained he has been reluctant to raise the cigarette tax because it's among the most regressive taxes. That means it falls harder on people with low incomes.

Even so, Dayton says he thinks that is ultimately outweighed by the fact that increasing cigarette taxes has been shown to reduce the number of people who smoke.

For updates from the Capitol all session long, follow FOX 9 political reporter Tim Blotz on Twitter @TimothyBlotz.


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Information from the Associated Press was used in this report.

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