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Dayton Ditches Controversial Sales Tax Plan

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(credit: CBS) Pat Kessler
Pat Kessler knows Minnesota politics. He's been on the beat long...
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ST. PAUL, Minn. (WCCO) – After weeks of widespread criticism, Governor Mark Dayton abandoned a controversial sales tax plan that included a new tax on business services.

The plan was even panned by fellow Democrats like Rep. Paul Thissen. The house speaker says dropping it was the right thing to do.

“I think what it shows is that Democrats want to govern well, and they want to listen to the people of Minnesota. And that is exactly what the governor just demonstrated,” Thissen said.

Without business taxes, the governor’s office says the rest of the sales tax plan is also gone. Minnesota’s 6.8-percent sales tax likely won’t be reduced and extended to new items like clothing. A corporate tax cut is off the table, and a freeze on business property taxes is gone as well.

And without new revenues generated by the expanded sales tax, there won’t be enough money to pay for a popular $500 property tax rebate to every homeowner.

What remains is an income tax hike on Minnesota’s highest earners: couples at $250,000 a year or more, and individuals earning more than $150,000. Rep. Kelby Woodard (R), the assistant minority leader, says these taxes will have a devastating effect on Minnesotans.

“These taxes are a killer,” Woodard said.

Minority Republicans had a rare “I told you so” moment. For weeks, they’ve been urging the governor to abandon his tax hike plans, calling them bad for job growth.

“The governor has finally conceded that taxes have consequences. The governor has heard from Minnesotans that high taxes result in less jobs for Minnesotans – and we agree,” he said.

What no one yet knows is how to pay for the programs Gov. Dayton and the Democrats want. That includes early childhood and K-12 education, job creation programs and some property tax relief. Dayton will unveil a new budget next week.

The Democrats hope that a billion dollar tax on wealthy Minnesotans will help fund the programs. They’re also looking very closely at new taxes on cigarettes and alcohol that could raise hundreds of millions of extra dollars.

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