DFL gubernatorial candidates differ on sales tax expansion

The DFL candidates running for governor have been pretty vocal about raising income taxes for wealthy Minnesotans as a way to solve the state's fiscal problems.

They've said less about the possibility of expanding the state sales tax -- a move that would hit all income levels. But some Democrats say an income tax increase alone won't solve the state's ongoing budget problems, and they say they would consider a broader sales tax -- even on clothing -- as another part of the solution.

Minnesota's sales tax rate of 6.875 percent is among the highest in the country. But Minnesota's sales tax base is among the narrowest because it doesn't include clothing, food and a long list of business services. An expansion of the sales tax could provide a significant boost in state revenues, and that's why Ramsey County Attorney Susan Gaertner said the idea is worth discussing.

"I have talked often about expanding the sales tax for example to services. We now have a service-dominated economy and a tax system that's based on an outdated goods-dominated economy," Gaertner said. "So we at least have to be talking about it. Specifically, I think we need to talk about raising the sales tax on clothing as well. We're one of the very few states that doesn't do it. It doesn't make sense any more in this economy."

"Half of our problem today has been that Tim Pawlenty took too many options off the table."

Other DFL candidates say they're also open to expanding the sales tax. State Rep. Paul Thissen said he'd consider a tax on clothing as part of a broader overhaul of the entire tax system. Minneapolis Mayor R.T. Rybak said he'd also look at a broader sales tax as long as it's linked to lower property taxes.

"I'll walk into office and look at all of those issues together, and I don't think it's smart to lay out a full tax plan in a campaign," Rybak said. "You need to have the whole power of the government behind you, the whole knowledge of that. And you can't isolate a sales tax from everything else."

Former state Sen. Steve Kelly doesn't want to get pinned down either. Kelley, who's been advocating the creation of a tax on energy consumption, said he wants a broad range of tax options on the table.

"Half of our problem today has been that Tim Pawlenty took too many options off the table," Kelley said. "And if a governor goes in with a new set of restrictions, our state is going to be in the same difficult time again."

Most DFL candidates regularly proclaim that the state's poor take a disproportionate hit when it comes to income taxes and property taxes, and they're concerned a sales tax expansion would only add to that regressive burden. State Rep. Tom Rukavina of Virginia, said he is firmly against a sales tax on clothing.

"Clothing is a necessity. Go stand in Embarrass, Minnesota, when it's 40 below zero and tell me it's not a necessity," Rukavina said. "You'll freeze to death."

Rukavina said he might consider expanding the sales tax to some goods or services that are primarily purchased by wealthy Minnesotans, but didn't offer specifics.

House Speaker Margaret Anderson Kelliher, another opponent of a sales tax on clothing, is also not ready to list the personal services she might be willing to tax.

"It would include a package of services," Kelliher said. "I mean I would be interested in recommendations from people who look at what the impacts are on the economy as well."

Kelliher said any expansion of the sales tax would have to reduce the 6.875 percent tax rate.

DFL State Sen. Tom Bakk of Cook has looked at several sales tax options as the chairman of the Senate tax committee. As a candidate for governor, Bakk said a lower rate is the only way to get public support for an expansion.

"It can't be revenue neutral, because the state needs some additional revenue," Bakk said. "So there's going to have to be some gap of new revenue in there. But I do think to get the public to buy in, you're going to have to lower the overall rate. And the question of how much you can lower it or how much you bring in really depends on how many things you extend it to."

Expansion of the sales tax is largely a nonstarter for the rest of the DFL candidates. Former U.S. Sen. Mark Dayton, former state Rep. Matt Entenza and State Senator John Marty say their priorities are making changes in other areas of the tax code.

Republican candidates for governor are nearly uniform in their opposition to tax increases. But when it comes to the sales tax, former state auditor Pat Anderson said she supports expanding the sales tax to clothing and services as part of a restructuring plan that would also cut corporate taxes.

Editor's note An earlier version of this report incorrectly stated that the sales tax rate is 6.5 percent. The passage of a constitutional amendment last year raised the rate to 6.875 percent, and this report has been corrected to reflect that.