As predicted, the Republican-led legislature and the Democrat-Farmer-Labor (DFL) Governor, Mark Dayton, played chicken all the way to the end last night.  Dayton refused to accept the balanced budget that Republicans crafted without tax hikes on those earning $1 million or more; Republicans refused to increase the budget from their 6% boost to double-digit expansion.  This morning, Minnesota’s state government stopped most of its operations:

Talks imploded Thursday between DFL Gov. Mark Dayton and Republican legislative leaders in the final hours before a midnight deadline, and Minnesota began a historic government shutdown. …

Republicans rejected the proposal, Dayton said, because they “prefer to protect the richest handful of Minnesotans at the expense of everyone else.”

Republican leaders made their own statement, saying Dayton’s proposal for dealing with the projected $5 billion deficit would cause irreparable harm to the state’s economy for generations.

“We will not saddle our children and grandchildren with mounds of debts, with promises for funding levels that will not be there in the future,” said House Speaker Kurt Zellers, R-Maple Grove. “This is debt that they can’t afford. It’s debt that we can’t afford right now.”

One particular problem in resolving the standoff is that the legislature is out of session now.  Republican lawmakers began staging a sit-in last night to demand a special session, which only Dayton can call.  So far, the governor has refused to do so without having a deal in hand.  Zellers indicated that the lawmakers would remain in the capital, saying that they are “very comfortable with where we are.”

Minnesotans have seen the collision coming for months.  Dayton ran for office on the promise to hike taxes, while Republicans won control of both legislative chambers for the first time ever on the promise not to hike taxes, but to cut the budget instead.  Even on that score, the new budget was rather weak tea; spending actually increases by 6% over the next biennium, as noted above, rather than decreasing.  Dayton and his DFL legislators demanded a 24% spending hike over two years, which is why they demanded the taxes to go with it.

Minnesota has done better than many places in terms of joblessness over the last four years, but it hasn’t entirely escaped its effects.  Joblessness peaked in 2009 at 8%, and it is now 6.6%.  However, the state had an unemployment rate of 5% or below for almost 15 years, and Republicans want to get capital to invest again in job-producing business expansion.  With low-tax states like the Dakotas surrounding Minnesota, that capital will flee to better environments.

What’s the environment like in Minnesota?  According to the Tax Foundation’s extensive research, Minnesota comes in 44th in business-tax climate for 2011 and 38th in income-tax burden and 38th as well for sales taxes.  Minnesota comes in 39th for unemployment insurance tax, a separate category from business tax.  The overall portrait puts Minnesota in the bottom 10 (43rd) for tax climates in the US.  Minnesota does not need more taxes; it needs more fiscal discipline from its state government.

Dayton may hold out for a while and hope to sell tales of woe to push his tax hikes, but he’d better take care.  He barely won his own primary, and then barely won the general election in a three-way race.  He doesn’t have a strong mandate for his agenda, a point that should have been obvious when his party lost both chambers of the legislature in the same election.  Republicans have an opportunity to show Minnesotans that budgets don’t need to double every four bienniums and that we don’t need to sink to the very bottom of the rankings on tax burdens.

Update: A word on the “projected $5 billion deficit,” since people are asking about it in the comments.  That’s the projected deficit in the upcoming biennium, not the previous biennium.  That budget balanced during the Pawlenty administration.  Dayton and his allies are blaming Pawlenty for the upcoming deficit, arguing that he deferred payments and spending to get to the balanced budget in 2009-10.  If so, he did it with a DFL-controlled legislature.  At any rate, the GOP wants to cut spending to eliminate the projected deficit, while Dayton and the DFL want to raise taxes to cover new spending.

Update II: In our Green Room, Mitch Berg catches public-employee union protesters acting classy.  Say, whatever happened to the New Civility?