No sign of compromise despite smaller deficit forecast

Gov. Mark Dayton and GOP legislative leaders have been staking out their positions over the last two months, but now the rhetorical war of words will heighten as the budget priorities become more clear.

State finance officials announced Monday that the projected deficit had dropped more than $1 billion -- to $5.03 billion in the next two-year budget cycle -- since the last forecast late last year.

But there are no signs yet that the smaller budget deficit forecast means a better likelihood of political compromise over key budget issues.

Dayton is proposing an income tax increase on Minnesota's top earners to help erase the deficit. He said his plan will fix the state's budget over the long-term and keep property taxes low by protecting aid to cities and counties.

Dayton is already trying to make the case that an income tax increase is a better option than more property tax hikes.

"It's too convenient, too easy here to make cuts in what's called spending cuts, and it shows up on the state ledger as a spending ... but the result of that is a property tax increase," Dayont said. "But those dollars have to come out of people's pockets for property taxes as much as income taxes and sales taxes."

The governor argues that it's more fair to raise the income tax on 5 percent of Minnesotans than everyone else's property taxes.

That talking point turns the tables on Republicans who have long argued that Democrats are the only tax and spenders in the Minnesota Legislature.

Dayton also took away another key Republican talking point after the new forecast when he revised his two week-old budget plan. He's eliminating his plan to create a temporary 3 percent income tax surcharge on people earning more than $500,000 a year, a plan he announced only two weeks ago.

"That was always intended to be temporary. I'm delighted that this revenue picture allows it to be extremely temporary," he said. "That would reduce the top rate that I'm proposing to the 10.95 percent in the so-called 4th tier."

Dayton's proposal would still leave Minnesota with the second highest income tax rate in the country. The new smaller deficit also means Dayton won't cut nursing homes, transit and a few other programs as he proposed in his original budget.

His revised budget now includes about $750 million in permanent spending cuts and $3.2 billion in new taxes, surcharges and fees.

Republicans continued to argue that Dayton's plan doesn't cut enough, saying Dayton isn't addressing what they characterize as rapid growth in state government programs. Republicans argue that they can erase the budget deficit without tax hikes.

House Speaker Kurt Zellers said businesses will be less likely to invest in Minnesota if Dayton's tax plan goes through, and he introduced a new message, warning against uncertainty.

"We would be the single largest increase in taxes across the country. That's just a bad economic message," he said. "What we just heard from the state economist and what we saw in our forecast was bringing certainty. Jacking tax rates up again would bring uncertainty."

State Economist Tom Stinson also poured some cold water on part of the Republican message. He said $5 billion in spending cuts would be worse for the state's economy than a mix of cuts and tax hikes.

Republican Senate Majority Leader Amy Koch said that state revenues are increasing over the past two-year budget but aren't keeping pace with spending projections. Koch said Dayton and lawmakers should work with the money available.

"What we're saying is: what's in the checkbook, let's live within with that. Let's compromise within that. Let's prioritize," she said. "Let's reform and we'll be healthier for it. Our economy and our budget will be healthier for it."

Republicans say they'll start rolling out their budget plan next week.

For now it sounds like both the governor and legislative leaders are sticking with their original positions, and signs of compromise seem as hard to spot as signs of spring.

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