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Better Minn. Economic Outlook Eases Budget Stress

"We're starting to see the positive impact of previous budget measures that focused on spending restraint vs. large tax increases," he said.

Dayton's proposal would impose a new tax rate for couples on taxable income above $250,000, hike taxes on cigarettes and rental cars, charge higher taxes to Minnesota corporations with overseas earnings and demand tax payments from "snowbirds" who spend most of their year living in another state. But the most controversial aspect is his bid to broaden the state sales tax to services such as haircuts and legal bills, and to clothing purchases that exceed $100.

Dayton has also suggested lowering the sales tax rate from 6.875 percent to 5.5 percent, cutting the basic corporate tax rate, freezing business property taxes, cutting unemployment taxes paid by companies and giving all homeowners a $500 property tax rebate.

The net effect would add more than $2 billion in new revenue to the state coffers â¿¿ half of which would go toward erasing the deficit and the rest toward new spending on education, economic development programs and other priorities.

Groups supportive of Dayton's budget were just as adamant that he stand firm. Doug Dooher, president of the Education Minnesota teachers union, said spending the governor has suggested for preschool through colleges is vital for the state's long-term health.

"That means building a strong foundation for young learners through all-day kindergarten, giving kids personal attention in smaller class sizes and, finally, providing affordable post-secondary education," Dooher said.

Dayton said he would present a revised budget in the second week in March as well as a borrowing plan for publicly financed construction projects. Legislative leaders said they would release the broad parameters of their own budget plans before lawmakers break for the Easter/Passover recess on March 22.

__

Associated Press reporters Patrick Condon and Kyle Potter contributed to this report. Follow Brian Bakst on Twitter at https://twitter.com/Stowydad

Copyright 2011 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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