Yesterday’s release of the state’s February Economic Forecast provided a dose of good news regarding our budget scenario, trimming $463 million off of the projected deficit for 2014-15. While Governor Mark Dayton has indicated he will release his updated budget proposal the week of March 11, I’ve made changes to my original “Plan C“, and I’ve detailed them below.
Recall that what I was trying to accomplish with my proposal were the following things:
- Minimize middle-class impacts as it relates to sales tax changes
- Make a meaningful payment towards the remaining K-12 school funding shifts
- Minimize negative impacts that come with expansion of sales taxes to B2B services
Having a $627 budget deficit instead of $1.1 billion makes it significantly easier to close the budget gap while accomplishing the three goals from above.
Let’s talk about the adjustments I make on the revenue side first. My total revenue increase has been cut by over 40%, made up of the following components that have changed:
- Business sales taxes are eliminated in this proposal
- The new fourth bracket for high income individual income taxpayers is pared back by 25%
- Sales tax rates are lowered to 6.25%, and consumer services are added to the sales tax base.
- Income tax cuts for the lowest two brackets are implemented, meaning all married couples filing jointly will get a tax cut on their first $135,000 of income.
Combined, the last two bullet points are revenue-neutral and designed to minimize impact of the sales tax base expansion on lower and middle-income taxpayers.
Similarly, I pare back spending increases by a similar percentage. While I tend to agree with politicians who point out the need for investment in critical areas of our budget like education, transportation, and health care, it’s not politically or financially prudent to propose tax and spending increases of the scope found in Governor Dayton’s budget given the smaller deficit we now face. There needs to be balance, and a recognition that moving too fast to increase taxes and spending in a still-fragile recovery may not produce the anticipated results.
- K-12 education sees an increase in spending of $380 million over the current forecast, made up of a $200 million partial repayment of the remaining funding shift, $50 million to fund optional all-day kindergarten, $44 million to expand early childhood programs, and $84 million in increased special education.
- $80 million in increased higher education funding directed towards expanding grant programs to make college tuition more affordable
- Dayton’s metro area transit sales tax plan is kept in place, which shifts some transportation funding out of the general fund budget
Here’s how it all breaks down:
What are your thoughts? Let me know in the comments.