Bakk proposes sales tax expansion to clothing
Minnesotans just don't want to pay sales tax on their clothing purchases, something Sen. Tom Bakk proposed Thursday as a way out of a state budget hole.
"Our phone calls are about 80 percent against it," Bakk said in an early evening Thursday interview. "Not a surprise, though."
Bakk used a St. Paul Capitol news conference Thursday morning to unveil his bill, which would repay the delayed education aid payments, reduce the state's general sales tax rate from 6.5 percent to 6.25 percent, reduce the current biennium budget deficit and remove the sales tax exemption on clothing.
"We have a $1.2 billion cut to schools and no way to pay it back," Bakk, Senate Taxes Committee chairman, said. "I'm proposing to commit to pay the schools back $120 million a year, and then cut the rate from 6.5 to 6.25, so everybody benefits from that."
At the end of 10 years, Bakk said he'd cut the rate again by the extra $120 million.
According to Bakk, for the current biennium only, the new revenue would be used for deficit reduction of about $257 million. Starting July 1, 2011, the general sales tax rate would be reduced by 0.25 percent and the education aid shift would begin to be paid.
Still, extending the sales tax to clothing is an uphill battle and has been for anyone who has proposed it, including former Gov. Jesse Ventura.
"Somebody has to propose something here," said Bakk, who is also seeking the Democratic endorsement for governor. "We've been here a month and everybody's sitting around starting at each other."
While this week's economic forecast lightened up on this biennium's projected shortfall -- from $1 billion to $994 million -- it deepened the deficit for the next biennium to $5.8 billion, which doesn't include inflation.
Gov. Tim Pawlenty, in his budget solution, counts on $380 million in federal funds that has yet to be approved Congress and may not be anytime soon, he said.
"People can not like it, but at least it's honest," Bakk said of his bill. "It's real money, it's not some fairy tale money from Washington that's never even been appropriated.
"I'm just trying to put something out there to get a discussion going," he said. "Bold ideas require strong leadership."
He said he met with business leaders prior to his news conference, and wrote a letter to Pawlenty, asking for a face-to-face meeting. The latter will not happen, Pawlenty staff told Bakk.
"It's pretty clear that the governor's moved on -- he's got his national ambitions," Bakk said. "I tried to engage the business community on the fact that we're still going to be here next year. ... We have to be honest with the fact that this $1.2 billion the governor is delaying from schools - there is no money to pay that back, and no requirement in the law to pay that back."
The sales tax provision actually comes from Gov. Pawlenty's 21st Century Tax Reform Commission, he said. Minnesota is one of only five states that still carries the exemption for clothing.
Bakk argues that his proposal is a tax cut. "I'm reducing the general sales tax rate. Does it bring in new tax revenue? Yah. But is it's not a tax increase because I'm cutting the sales tax."
Businesses pay 45 percent of all the sales tax in the state, Bakk said, which should interest them in his proposal. "For them, cutting the sales tax from 6.5 to 6 ... if they pay 45 percent of that, that's a significant business tax cut."
Bakk said a lot of details need to be worked out. His proposal calls for a straight sales tax on all clothing, regardless of family income. But he's open to discussions about tax credits for families up to a certain income.
"If the governor wants to meet and have a discussion about some kind of low-income tax credit," Bakk said he'd be open. One of the major opponents, he believes, will be groups representing young families with kids in school who need to make school clothes purchases every year.
"The discussion I'm willing to have with the governor about that is I'll give the governor the authority to declare a clothing tax holiday," Bakk said. "We can give him a couple of days in law that the governor could pick where there wouldn't be a sales tax on clothes. You can do that right before school."
And he said such a notation could create a "Thanksgiving Friday in August for people wanting to shop for back-to-school stuff."