Dayton confronts Minn. businesses over taxes

Brian Bakst, Associated Press

ST. PAUL, Minn. (AP) -- Having already bowed to business opposition to his budget, Minnesota Gov. Mark Dayton on Wednesday said he was determined to see through a bid to raise income taxes on the highest earners.

In often-confrontational remarks to a Minnesota Chamber of Commerce luncheon, the Democratic governor said he won't retreat from a proposed new top bracket on taxable income above $250,000 for couples and $150,000 for single filers. He said it would be the cornerstone of a call for $1.8 billion in additional state revenue.

Last week, Dayton dropped a controversial proposal to expand the sales tax in the face of stiff business community opposition. He was scheduled to release his revised budget on Thursday.

"We Minnesotans have always earned our success. We don't have rich oil and gas deposits, we don't have scenic oceans or warm winters. It has never been given to us and we know it doesn't come free," Dayton said before referencing prior tax increases that fed investments in schools and workforce development.

Aside from plugging a $627 million projected deficit, Dayton said he wants to use the money generated from new income and cigarette taxes to build up pre-school programs, expand the availability of all-day kindergarten and enhance public colleges.

Dayton said his revised budget won't contain the homeowner property tax breaks or corporate tax breaks he initially proposed. And he challenged the contention of political foes that spending cuts would be a better route to a balanced budget without hurting the state's business climate.

"You can't just bandy around reform like a slogan. It has got to be something real," Dayton said. "''Believe me, we'll cut spending every way we can. We're not going to savage people in the process."

His pitch didn't go over well.

While Dayton was introduced to a standing ovation, the loudest applause after that came when an audience member used a question-and-answer session to tell Dayton that Minnesota's budget has grown too fast and spending is the cause of perpetual problems. Other chamber members told the governor they resented the impression that his plan to raise taxes on the top 2 percent was aimed at the mega-rich; they said their small businesses would suffer because they file through the personal income tax code.

Chamber president David Olson said the business lobby won't endorse any new taxes. With the sales tax discussion all but over, Olson said the focus will turn to defeating the income tax plan.

"It's not just about the wealthy. It's about these small companies," he said.

Of the Minnesota businesses that file their taxes via personal returns, 6 percent would be affected by the new rate, Dayton said. He said 54,000 filers in all would be hit with the new tax, with an average annual income of $645,000. He expects the tax to raise $1.1 billion over the next two years.

Senate Majority Leader Tom Bakk said this week that Senate Democrats would consider enacting an income tax with an even broader reach, perhaps the top 5 percent of earners.

Dayton said his revised budget would still include a "snowbird tax" on people who spend part of their year living in a different state. Currently, income taxes don't apply to people who live at least six months elsewhere, but his proposal would lower that threshold to two months. But Dayton acknowledged the tax would be hard to enforce and he doesn't expect it to prevail.

"I wouldn't worry about that one," he told his chamber audience.