GOP begins scrutiny of Dayton's tax hike plan

Gov. Mark Dayton traveled across Minnesota Wednesday to pitch his plan for erasing a projected $6.2 billion state budget deficit.

Republican legislative leaders made a similar tour to criticize the plan, which mostly relies on new tax revenue.

Back at the Capitol, House and Senate tax committees were also taking aim at the Democratic governor's plan for raising income taxes on the state's wealthiest residents.

Much of the committee focus was on Dayton's proposal for a fourth income tax rate of 10.95 percent. The new higher tax would kick in on single filers with annual taxable income of $85,000 or more, and on couples with taxable income of $150,000 or more a year.

The governor's proposal also calls for a temporary 3 percent surtax on Minnesotans earning more than $500,000 a year.

Republicans oppose any tax increases. Senate Taxes Committee Chair Julianne Ortman, R- Chanhassen, raised concerns about the impact of Dayton's plan on small businesses owners.

"We're concerned about investment opportunities and innovation and job creation, and very concerned that those very filers aren't going to have the resources needed to make those choices, or may not want to, given the new fourth and fifth tiers," she said.

"The governor is looking at Minnesota as an island, and an island he will be creating with this budget. Unfortunately, it will be a deserted island."

Ortman and other Republicans predicted that many Minnesotans in the affected income groups would leave the state to avoid higher taxes. Sen. John Howe, R-Red Wing, said he wants to prevent a potential exodus.

"The simpler we have our taxes, and the more competitive we are, the more apt we're going to have people staying in here creating businesses, starting businesses and paying their taxes," said Howe.

Similar concerns were raised by Republicans in the House. Rep. Mark Buesgens, R-Jordan, said other states have already learned hard lessons from tax increases.

"The beauty of our system is supposed to be that it's a republic -- 50 learning labs, and we learn from each other. And yet it seems like the governor is looking at Minnesota as an island, and an island he will be creating with this budget. Unfortunately, it will be a deserted island," said Buesgens.

Democrats suggested the proposed tax increases could yield economic benefits. Senate Minority Leader Tom Bakk, DFL-Cook, said some small business owners might chose to put more of their money into their businesses.

"This could end up actually as a vehicle where, in order to avoid the additional tax liability, it would make financial sense for them to invest more money in their business because they can avoid the additional tax liability for that," said Bakk.

A more vigorous defense of the Dayton plan came later in the day when the Minnesota AFL-CIO held a rally in the Capitol rotunda. Russ Jones, an unemployed union floor layer from Anoka, said he supports Dayton's "tax the rich" message.

"Hopefully we can get this fixed with Mark Dayton," said Jones. "Hopefully, the rich will get a grip on that the little bit he's asking will go a monster long way in fixing our economy that they messed up."

Dayton's chief of staff, Tina Smith, addressed the rally, asking union members to help the governor make the case for his budget.

"If this is the kind of a Minnesota that you want; if this is how you want to get Minnesota working again, we need you, because Gov. Dayton can't do this by himself," said Smith. "None of us can do this by ourselves. We all have to be in this together."

House and Senate tax committees will resume discussions of the governor's proposal Thursday. Both panels are expected to begin taking public testimony next week, from supporters and opponents on the proposed tax increases.

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