Governor Mark Dayton proposed Thursday that $616 million of the $1.2 billion budget surplus be allocated to tax cuts, $162 million go toward essential expenditures, and the remaining $455 million be added to the state’s budget reserve.
 
During a Thursday conference call with reporters, Dayton said that although some Minnesotans would rather the state give back the entire surplus, he believes limits had to be set in order to maintain a healthy reserve.
 
“I admit there are a lot of needs out there that I’m not addressing and some people may be unhappy with that . . . but I believe we must maintain tight discipline over additional expenditures in non-budget years,” Dayton said. “And we must remember these are forecasts of surpluses; events around the world could drastically alter our nation’s economic outlook and thus Minnesota’s.”

 
The governor said his proposal would bring the state’s total budget reserve to $1.116 billion.
 
According to Dayton’s office, the bulk of the tax cuts—$301 million—would benefit middle class Minnesotans. The proposed tax plan would conform Minnesota’s tax code to the federal government’s, which Dayton claimed would simplify and provide greater tax relief for the middle class.
 
Dayton’s office characterized the following proposed changes as examples of middle class tax relief:
 

• Married couples: More than 650,000 married couples would save an average $115 per year under the governor’s plan to eliminate the “marriage penalty.”

• Working families: 13,000 more middle class families would qualify for the “Working Family Tax Credit,” and 40,000 would receive an increased credit. These families would save an average of $334.

• Day care: By expanding tax credits for child care, the number of families benefitting would increase from 36,000 to 170,000. The average tax benefit would increase $430 per year.

• Students: The governor said his tax plan would provide 285,000 recent college graduates up to $190 per year by deducting their student loan interest. Another 40,000 current college students and parents would receive a tuition deduction of $140 per year, on average.

• Small employers: Small businesses would be able to offer their employees tax-free tuition and adoption assistance. The governor’s tax plan would also simplify small business taxes by eliminating requirements to maintain separate records for federal taxes.

• Additional tax relief: The governor said his plan for middle class tax relief would also help seniors, veterans, teachers, and homeowners. For more information on how, click here. 

 
The new proposal would also allocate $232 million to reducing business sales taxes—focusing primarily on the three business-to-business taxes that passed in the last legislative session. The three taxes set for repeal include the taxes on farm equipment repair, purchases of telecommunication equipment, and warehousing and storage services.
 
On a smaller scale, the proposal also allots $43 million to increasing the exemption from the estate tax and eliminating the state’s gift tax—currently Minnesota and Connecticut are the only states that still impose a gift tax. Dayton’s plan would increase the exemption from the estate tax from $1 million to $2 million, which the state said is the first increase enacted in more than a decade.
 
The governor’s plan also allocates $25 million to reduce sales taxes for local governments and nonprofit organizations. The proposal would extend local government tax exemptions from city and county governments to local government districts and local joint powers entities that provide services for cities, counties, and townships. The proposal would also reduce sales taxes for nonprofit groups’ fundraising expenses.
 
Fifteen million dollars will also be allocated to increasing angel investor tax credits for startup businesses and entrepreneurs.
 
“Minnesota’s economy has added 133,000 new jobs during the last three years. Our improving economy has greatly improved the state’s budget forecast—giving us the opportunity to put more money in the pockets of Minnesota families and businesses,” Dayton said in a statement. “I urge members from both parties to work together to pass these tax cuts quickly.”
 
The proposal is now put in the hands of the House and Senate for possible adjustments or passage. The House is scheduled to vote Thursday afternoon on a bill that includes many of the same tax cuts that the governor’s plan proposes.