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Why Minnesota? Possible state shutdown mirrors larger US debate

With tax revenues still low, state and federal budgets are tight – and across the nation, politicians are drawing lines in the sand.

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“Over a month ago, the governor offered to compromise and to meet the GOP halfway between their two budgets," said Katharine Tinucci, Dayton's press secretary, in a statement released June 20. "It’s the Republicans who have refused to budge from their position."

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State Republicans say they've been negotiating in good faith, and that they are willing to pass a temporary funding measure to avoid a shutdown while talks continue – an offer Dayton has rejected.

Republicans cite polls suggesting that Minnesota voters overwhelmingly prefer spending cuts to tax hikes.

The Tax Foundation, a research group that supports low tax rates, says Dayton has proposed about $3 billion in new tax revenue as part of a two-year, $36 billion budget. The group says Dayton's plan would result in a top marginal tax rate of 10.95 percent for those making over $85,000 in income. A temporary three-year surcharge of 3 percent would be added to those with incomes over $500,000.

The outcome of the wrangling is uncertain, and a shutdown would be unusual. But the pattern shows up in statehouses across the nation, with California and Illinois as other prominent examples of states in fiscal peril.

The budget challenges are both short- and long-term. States, as well as the US Treasury, are still struggling to recover from the fiscal impacts of recession. But they also face the tab for long-term costs, like entitlement programs or employee pensions.

In Washington, Mr. Obama is seeking an accord with Republicans to expand the nation's debt limit. Republicans have said any deal to allow more federal debt should be paired with deep spending cuts, while Obama favors a mix of spending cuts and tax increases.

The Treasury has said the debt ceiling must be raised by about Aug. 2 to avoid serious funding problems.

National polls show Americans generally don't like the idea of higher taxes. But they also show a wariness about steep spending cuts. And taxing the rich, as a means of closing budget gaps, is an idea that garners majority support.

Material from the Associated Press was used in this story.

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