Horner's budget would tax clothes

To lift Minnesota out of its budget mire, Independence Party gubernatorial candidate Tom Horner wants to start taxing clothes, eliminating a state tax break long seen as a birthright and a boon for retailers.

He'd also tack $1.50 on a pack of cigarettes and a dime for every beer or glass of wine.

"Democrats and Republicans have dug the hole so deep that it's going to take awhile for us to climb out of it," Horner said Monday, releasing a budget plan that he said would cut spending through "redesign" of government. "Here's a way to climb out of it; here's a way to invest in the future; here's a way to create new jobs; here's a common- sense approach to making Minnesota a great state."

Political rivals pounced on Horner's call for new and higher taxes they said would most hurt low- and middle-income Minnesotans. Horner's plan did include measures intended to soften the blow, including lowering the overall sales tax by 1 percent, down from the current 6.87 percent statewide. To ease the hardship for low-income Minnesotans, Horner would return $350 million to low earners as tax credits.

Horner joins DFLer Mark Dayton in offering detailed plans for resolving the estimated $6 billion budget deficit for the next biennium. The state's budget woes have become the defining issue of the gubernatorial race, vividly framing the three candidates vying to replace Republican Tim Pawlenty.

Dayton, a former state auditor, was the first candidate to detail his plans for taking a meaningful bite out of the budget deficit, turning an unwavering pledge to "tax the rich" into a campaign mantra. A department store heir, Dayton would raise income taxes on Minnesota's highest earners, whom he says don't pay their fair share. Republican Tom Emmer has made bold pronouncements about reforming and redesigning state government without raising taxes, but so far he's danced around calls for specifics.

Yet there are signs that Emmer's campaign is bowing to the growing drumbeat of those demanding details.

Initially, Emmer said he would release a plan in October, giving voters just a few weeks to pressure-test his plan. Now the campaign says it expects to release Emmer's budget in two to three weeks.

Dayton isn't waiting for the details of Emmer's plan before opening fire.

"Mr. Horner and Representative Emmer both believe that Minnesota's millionaires and multi-millionaires should not pay a single dollar more in personal income taxes and that everyone else in Minnesota should pay higher taxes instead," Dayton said in a Monday statement. "That is a fundamental difference between me and both of them in this campaign."

State Republican Party Chairman Tony Sutton said it would be "regressive and irresponsible" to expand the sales tax. Horner's proposal would also reduce the rate by one cent.

"Horner likes to pretend he's a moderate, but he always ends up taking the liberal position by pushing for higher taxes and bigger government," Sutton said in a statement. "During these tough economic times, the last thing we should be doing is raising taxes on anyone and putting more money on the state's credit card."

In addition to budget cuts, redesign and tax increases, Horner would modestly bump up funding for education, include seed money to spur innovation and cut corporate taxes in coming years.

While Dayton and several DFL legislative leaders have proposed a new top tax tier for high earners, Horner's budget leaves income tax rates unchanged.

Instead, Horner would double the cigarette tax to $3 per pack and raise alcohol taxes to generate $600 million over two years.

Along with taxing clothing, Horner also would add sales taxes to some yet-to-be-defined services. Food, medical procedures and prescriptions would continue to be exempt from the sales tax.

Gambling is a go

Additionally, Horner would push for so-called racinos, which would allow slot machines at state horse-racing tracks. The idea has generated little interest at the Capitol, but could, according to some estimates, bring in about $250 million in additional money for the state. Horner would earmark the funds for a new Vikings stadium, a natural disaster relief fund and for replenishing state budget reserves.

"Here's my philosophy and I can defend it. Here's what I think is in the best interest for Minnesota," said Horner. Until recently, he was a partner in Himle Horner, a public relations company whose clients included the Vikings and Canterbury Park, which is seeking a racino.

Horner would slice nearly $2.5 billion through spending cuts, redesign and newfound efficiencies. He didn't outline firm cuts, but said he would appoint about 10 "redesign teams" to overhaul state government. He would also impose a hiring freeze.

Horner's budget also postpones repaying the $1.8 billion the state borrowed from public schools to balance the current budget. He said he hopes to begin repaying schools in 2013, unless the economy rebounds sooner. Since cash-strapped schools have had to resort to short-term borrowing to smooth out the rough patches in their budget cycle, Horner offered to set aside $20 million to reimburse school districts for interest payments.

In pitching his plan, Horner criticized Emmer for offering no plan and Dayton for not laying out the details of his new tax rate for high earners.

Dayton, for his part, has offered more budget details than his rivals.

Along with about $4 billion in new tax revenue, Dayton found about $680 million in cuts. He's also proposing a casino at the Mall of America. All told, he's still about $635 million short.

Dayton continues to refine his budget proposal. Last week, he invited Minnesota business leaders to help him find additional cuts. Dayton's team also has begun to work with Senate DFLers to firm up the new tax bracket on high earners, said Katharine Tinucci, campaign spokeswoman.

Horner said he has now distinguished himself by having the most comprehensive plan for voters to consider.

"What we need this year, more than any other year, is a campaign in which we are honest with Minnesotans," Horner said. "If we don't use the campaign to engage Minnesotans in the tough decisions we have to make, and the opportunities that we have in the state, we're losing a great opportunity."

Baird Helgeson • 651-222-1288