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Don Davis and Danielle Killey, Forum News Service, Published February 15 2013

Minnesota budget questions abound

ST. PAUL – Federal tax law changes could lead to a deeper Minnesota budget deficit, the state Senate leader says, one of several uncertainties about the state budget.

The possibility of a growing state deficit and ambiguity about what is happening in Washington raise questions about whether Gov. Mark Dayton’s $38 billion two-year budget proposal will need major alterations. Even many of Dayton’s fellow Democrats wonder about the tax portion of the plan a month after it was introduced.

In November, financial officials reported the state faced a $1.1 billion deficit, a figure Dayton used in building his budget. A financial report earlier this month appeared better, with the state collecting $140 million more than expected in January.

However, Senate Majority Leader Tom Bakk, DFL-Cook, said that tax bump actually may be bad news.

The former Senate Taxes Committee chairman said the increase was “driven by the federal tax policy changes. I believe there are a lot of people deciding to cash in some investments and dividends at the lower tax rate than the tax rate you see now.”

To deal with the so-called “fiscal cliff,” Congress and the president allowed some taxes to rise, which prompted what Bakk said were attempts to sell before taxes went up.

“I am more concerned now about the deficit growing than I was a few weeks ago,” Bakk added.

On top of the deficit and congressional questions, Bakk and House Speaker Paul Thissen, DFL-Minneapolis, Friday said they need to know more about Dayton’s plan to charge sales tax on more items to see if it could be “problematic.”

Senate Minority Leader David Hann, R-Eden Prairie, was blunt about the Dayton plan, calling it “dead on arrival” because, to him, it appears no legislator from either party supports it.

Dayton expects to submit a revised budget request next month after an updated state budget forecast is released on Feb. 28. Included in the forecast will be information about how ongoing federal budget talks could affect the state.

Bakk said he submitted a request to the state Revenue Department about specifically what would be taxed under the Dayton plan. He has not heard back.

Lawmakers, business leaders and others have wondered about Dayton budget specifics, especially changes to the sales tax. Dayton’s proposal would lower the sales tax rate to 5.5 percent from 6.875 percent, but would tax more items, including services and pieces of clothing that cost $100 or more.


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