The governor's revised budget released on Wednesday relies on $1.8 billion in new taxes.
Now, DFL majorities in the Legislature have to decide whether to use the governor's budget as a blueprint or come out with a different plan.
Gov. Mark Dayton's revised plan is dramatically scaled back from his proposal in January, but still erases a projected budget deficit and spends more money on schools and economic development.
Dayton plan in January expanded the state's sales tax to consumer and business services, raised income taxes on top earners and hiked cigarette taxes. At the time, he said his plan was bold. In a do-over, Dayton is scrapping the sales tax proposal after it tanked with the business community, the public and the Legislature.
"It's not as bold as it was before. I talked about plan A, B and C. This is plan B-plus, I'd say," Dayton said.
The revised budget still raises taxes to erase the state's projected $627 million deficit and spend more on education and economic development. In total, Dayton's $38 billion budget over the next two years is a 7 percent increase over current spending.
Dayton is relying on higher income taxes for couples with taxable incomes of at least $250,000 a year and single filers who make $150,000 and more. He also wants to increase the cigarette tax by 94 cents a pack and raise taxes on corporations that operate overseas.
“It's not as bold as it was before. I talked about plan A, B and C. This is plan B-plus, I'd say.”Gov. Mark Dayton
"I think it's a balanced approach. It's a balance of selected revenue increases, raising taxes on only the wealthiest 2 percent of Minnesotans and also making investments that are going to pay off for a better Minnesota," Dayton said.
The governor also announced that he is dropping his plan to give a $500 property tax rebate to every homeowner. His plan, however, increases funding for an existing property tax rebate program, spends more on a renter's tax credit and boosts state aid to cities and counties.
One thing Dayton's plan does not do is speed up payments to K-12 schools. Those payments were shifted in 2011 to help balance the state budget.
DFL House Speaker Paul Thissen said House Democrats are likely to support Dayton's plan to increase income taxes on top earners and close what he calls corporate tax loopholes. But he said the DFL-controlled House differs with Dayton on the K-12 school shift.
"I imagine the shift is where we'll be a little bit different. The governor does pay back the shift, just over a longer period of time," Thissen said. "We'd like to do that more quickly."
DFL Senate Majority Leader Tom Bakk is not willing to take anything off the table, including an expansion of the sales tax. Bakk also said Senate Democrats may also go further than the governor on the income tax hike.
"Some version of that is almost certain to land on the governor's desk. I don't know if it's 2 percent or 5 percent, or if the rate is higher on the 2 percent," Bakk said. "There may be some modifications, but I think what the governor sees at the end will probably be similar to what he's proposed."
Republicans criticized Dayton's budget. They say raising taxes would hinder the state's economic recovery. Even though Republicans do not have the votes to stop Democrats from increasing taxes, Republican Senate Minority Leader David Hann said he hopes Dayton will hear a public outcry similar to the one that made him back down from expanding the sales tax.
"I think it's time for the people of Minnesota to weigh in on all of the taxes and just ask the question 'Do you need high taxes to grow the economy?' Hann said. "We don't believe so."
Hann and other Republicans said they can erase the state's $627 million budget deficit through spending cuts but did not say what programs they would cut. Dayton said anyone who says they want to cut spending should be specific.
DFL legislative leaders say they intend to release the broad outlines of their budget plans next week.