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Dayton unveils tax overhaul plan for the state

Governor Mark Dayton announced that he intends an overhaul of the state's tax and budget systems. He presented his proposal to the media on Tuesday, saying that he wanted to put an end to "gimmicks and fiscal games."

Dayton's plan, which would bring in $2 billion in new revenue over two years, would reduce the sales tax rate from 6.875 percent to 5.5 percent, but tax services such as haircuts and auto repairs which are currently not taxable. Clothing items costing more than $100 also would be taxed.

The proposal also would increase income taxes from the current 7.85 percent to 9.85 percent for income above $250,000 for couples and above $150,000 for individuals. The hike would affect 27 of the 4997 taxpayers in Lake County and 883 taxpayers in St. Louis County, according to the Dayton's office.

The governor said his state budget and tax reform plan is a starting point as the Minnesota Legislature works to set a two-year budget by May 20. He said he did not know how the sales tax changes would affect consumers. Senate Minority Leader David Hann, R-Eden Prairie, said he thinks the cost would be passed on to them. But Democrats said Minnesotans will welcome another aspect of the plan: a property tax rebate of up to $500.

Commissioner Tony Sertich of the Iron Range Resources and Rehabilitation Board said the rebate is a big deal, given how much property taxes have risen in recent years.

"It is going to make a significant dent on it," he said.

Dayton said the lower sales tax rate should offset the expansion of taxes to services and high-end clothing, and between that and the property tax rebate, middle-class Minnesotans should not pay more taxes and could pay less.

"For most Minnesota families it is a wash," he said.

Republicans were not as pleased, especially when it came to taxes. Hann disagreed with Dayton's claim that the average Minnesotan would not pay more with the changes.

"Everybody's going to get hit with these taxes," he said.

Hann said he would like to see tax reform, but would rather focus on lowering the rate rather than expanding taxes to services and clothing.

Senate Majority Leader Tom Bakk, DFL-Cook, said he plans to talk with business leaders about their reactions to the proposal.

"There's a lot in here for the business community to like," Bakk said.

The plan includes provisions that cut the corporate income tax rate by 14 percent and put a two-year freeze on statewide businesses' property taxes.