Expansion of the sales tax to clothing is up for discussion already in the new Legislature.

In 2009, MPR News summarized the sales tax views of DFL candidates for governor. The field was divided. In that story, MPR News reporter Tim Pugmire wrote:

Expansion of the sales tax is largely a nonstarter for the rest of the DFL candidates. Former U.S. Sen. Mark Dayton, former state Rep. Matt Entenza and State Senator John Marty say their priorities are making changes in other areas of the tax code.

Senate Democrats included all-day kindergarten among their first bills of the session, including $170 million annually to school districts to offer all-day kindergarten as a voluntary program. Will there be more pre-K spending in Gov. Dayton's plan?

Gov. Dayton's budget and tax plan highlights

-- Expand sales tax to clothing above $100
-- Cut sales tax rate from 6.875% to 5.5%
-- increase income taxes on couples with taxable income of $250k or more (single filers at $150k or higher); new bracket would be 9.85% (top rate is now 7.85)
-- Raise cigarette taxes 94 cents per pack
-- Property tax relief; corporate income tax cut

Here's the story from MPR's Tom Scheck:

Gov. Mark Dayton is proposing to dramatically change the state’s tax structure in a budget proposal that focuses on new spending for K-12 schools and early childhood education.

Dayton’s plan relies on higher income taxes on top earners and an expansion of the sales tax to clothing purchases more than $100 and some services like legal and accounting services. Cigarette taxes would also increase 94 cents per pack under his proposal.

The governor’s plan would reduce the sales tax rate from 6.875 percent to 5.5 percent. He also proposed providing property tax relief to homeowners and business, cutting the corporate income tax and increasing state aid to cities and counties.

“Some will say we spend too much in this budget, and some will say we don’t spend enough,” Dayton said in prepared remarks. “To those who claim this spending is too high, I challenge you to say exactly where more cuts should be made. And to those who say we need to spend more, I challenge you to say exactly where the money should come from.”

Dayton is looking to use the new tax revenue generated from his plan to spend more on education, from early childhood to colleges and universities. The plan spends $240 million more for higher education, another $118 million for K-12 schools and $44 million for early childhood education and another $40 million for all-day kindergarten.

“We need to put our money where our beliefs are, and where we know we can get results,” Dayton said.

Dayton, who campaigned in 2012 on raising income taxes on top earners is taking the political gamble that the public will accept a change to the state’s current tax structure if it’s directed to education.

He argues that his plan would make the state income tax system fairer and that most Minnesotans wouldn’t see a dramatic change in their taxes.

“Married couples with taxable incomes below $250,000, would pay the same in income taxes, also pay about the same in sales taxes, and receive a property tax rebate from the state of up to $500,” Dayton said in prepared remarks. “That is a $500 per year tax cut for most middle-income Minnesota families.”

Dayton also says that changing the state’s tax code will help boost job creation in Minnesota. He proposes lowering the state’s corporate income tax from 9.8 percent to 8.4. Dayton’s plan also eliminates tax breaks for corporations that operate overseas.

Republicans have repeatedly warned that any type of tax increase will hurt the state’s economic recovery.

Text of the Dayton plan: mn.gov

Link to the Gov's presentation: www.mmb.state.mn.us

Revenue Cmr Frans: The key was broadening bases and lowering rates. We leveled the playing field for all businesses in Minnesota and all Minnesotans.

Governor, aides taking questions now from reporters.

Asked about proposal to tax clothing above $100, Dayton jokes, "Taxing clothing goes against my upbringing." Calls the proposal "the best we could come up with" and says he expects many "$99.99 specials around the state in years to come."

Dayton: Cigarette tax increase to act as a deterrent to smoke, increase would put per pack cig tax on the same level as Wisconsin.

Dayton’s budget proposes no increase in expenditures for the Minnesota Security Hospital, the state-fun facility that provides treatment to people deemed to be mentally ill and dangerous. -- Madeleine Baran, MPR News

Business tax relief text from Dayton's budget proposal

Largest Reduction of Corporate Tax Rate in 26 Years 2013
•Reduces corporate tax rate by 14% (from 9.8% to 8.4%)
•Eliminates tax breaks such as FOCs and foreign royalty subtraction for some businesses to lower the rate for all businesses
•Our corporate tax rate drops from 4th- to 12th-highest among states

Budget reduction text, from Dayton's budget proposal

$5.1 Billion in Cost Savings and Reductions Over 4 Years
Cost Savings and Reductions – FY 2012-13
•$2 billion of budget cuts in the 2011 session
•$1 billion of additional budget savings in subsequent forecasts (all that and more used to pay back schools)
•$1 billion in cost inflation absorbed by state agencies
Cost Savings and Reductions – FY 2014-15
•$225 million of reductions and reallocations in the proposed budget
•$890 million in cost inflation absorbed by state agencies
Leaner Government
•Save on contracting and simplify permitting, licensing and tax filing
•Incentives to control costs

Dayton: Tax-wise, we're competitive with other states.

Dayton: I'm not out to raise anybody's taxes, I'm out to raise enough money to do what's right for Minnesota..

Dayton: The vast majority of Minnesotans know the present (tax) system is unfair. I believe it has to change. You tax entities and people fairly, you come out with a system that people trust.

Dayton press conference ends

Thanks to all who followed the live blog this morning.