At a press conference on Thursday, Senator Tom Bakk introduced a bill that would raise new revenues for the state by applying the sales tax to clothing and sewing materials. His proposal, which he said he has not yet discussed with the tax committee or with his caucus, would use the new sales tax revenue in the following ways:

• In FY 2011, the sales tax on clothing would raise $258 million that would be used to address the state’s budget deficit.
• Starting in FY 2012, $120 million per year of the revenues raised would be used to pay back the $1.2 billion school aid payment deferral that was implemented under allotment. The remainder ($166 million in FY 2012) would be used to reduce the general sales tax rate from 6.5 percent to 6.25 percent.
• By FY 2021, the school payment shift would be fully paid back. At that point, the general sales tax rate would be reduced further. In other words, once the school payment shift is paid back, all of the proceeds raised from the sales tax on clothing would be used to reduce the sales tax rate.

There would also be rate reductions to the 0.375 percent sales tax collected under the Legacy amendment (dedicated to environment, arts and cultural heritage), the 0.25 percent metro transit improvement tax and the Hennepin County sales tax that pays for the Twins stadium. These dedicated taxes would still raise the same amount of revenue, but from a larger base and a lower rate. This is in keeping with the Legacy amendment, which states:

If the base of the sales and use tax is changed, the sales and use tax rate in this section may be proportionally adjusted by law to within one-thousandth of one percent in order to provide as close to the same amount of revenue as practicable for each fund as existed before the change to the sales and use tax.

One of the handouts from Thursday’s press conference showed that a sales tax on clothing is less regressive than the general sales tax. We have argued that tax changes are needed to make progress on addressing the rising regressivity of the tax system. Senator Bakk noted that while his preference would be to pursue a strategy of increasing the income tax, which would be more progressive, that is something that the Governor will not support so he’s taking a different direction this year.

In the press conference, Senator Bakk emphasized that he thought it was important for the state to have a conversation about the role of raising taxes as part of a balanced solution to the state’s budget problems. We agree, and appreciate his contribution to that conversation.

-Nan Madden

Filed under: Budget Proposals, Taxes