The T Word: House DFL exploring sales tax extenders

As budget machinations start in earnest this week following last Tuesday’s revised revenue forecast, House DFLers say spending cuts are still job one, but there is finally some movement on the tax and revenue side as well. Sales tax extenders in particular seem to be eliciting a lot of interest.

Among members and staff with whom PIM has spoken in recent days, it seems clear that ending the sales tax exemption on clothing is an attractive option to many. According to the Minnesota Budget project’s estimates [previous PIM item], that move could add around $700 million to state coffers for the 2010-11 biennium. Other ideas we’ve heard repeatedly: taxes on legal and accounting services.

But one source close to the DFL discussions in the House cautions that the larger debate over which services to include in any broadening of the sales tax base has barely started: "It’s still an informal conversation at this point."

Will the DFL try to couple a broadening of the sales tax with a rate reduction, as some observers expect? The governor’s blue ribbon commission on taxes recently came out in favor of a broader sales tax at current rates, theoretically offering everyone involved a little more shoulder room on the issue. "It’s a more attractive package politically if you lower the rate," notes the House source, but there’s no guarantee the DFL will go that way: "Given the magnitude of this deficit, whatever we do can’t be revenue-neutral. It has to generate more revenue."