ST. PAUL, Minn. (WCCO) — Gov. Tim Walz is dropping some of his proposed tax increases and providing some tax relief to small businesses and Minnesotans who received extra jobless benefits, according to his revised budget plan released Thursday.

He is shrinking his proposed tax increases from $1.66 billion to $670 million, which include eliminating his increase on cigarette and estate taxes and decreasing a corporate tax rate increase from 11.25% to 10.8%. Additional taxes on the wealthiest Minnesotans remain.

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The plan would also make the first $350,000 of Paycheck Protection Loans businesses received from the federal government exempt from state taxes. Up to $10,200 in extra unemployment benefits would be tax-free, too. The Minnesota Senate approved its own bill tackling these issues, exempting from state tax liability all Paycheck Protection Loans and 18% of jobless benefits for certain income levels.

Approximately 90% of PPP loans in Minnesota were under $350,000 and would receive the full tax exemption under the governor’s proposal, according to a news release from Walz’s office.

“With the recent good news that Minnesota now projects a positive budget balance, we’re recommending additional investments to support working families, ensure students catch up on learning, and help small businesses stay afloat while driving economic recovery,” Walz said in a statement.

The move is in response to an improving fiscal outlook for Minnesota. State budget forecasters in February predicted a nearly $3 billion swing in the state’s next two-year budget from a $1.3 billion deficit to a surplus of $1.6 billion. Walz updated his budget proposal for lawmakers to reflect the changes.

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His revised plan does not account for the nearly $2.6 billion the state is slated to receive in state government aid — on top of money for other programs — from the $1.9 trillion federal COVID-19 stimulus plan, which means his budget could be revised yet again.

Walz’s budget would replenish the state’s reserve accounts when it previously called on lawmakers to draw $1.53 billion in order to fund the state’s priorities. He is also suggesting expanding eligibility to tax credits for working families and establishing an earned sick and safe time program that would ensure workers can get up to 48 hours per year in paid leave.

But the proposal is all but certain to face opposition in the legislature, where Republicans control the Senate and have doubled down that they will refuse any tax increases. Senate Republicans in their budget targets released this week included no tax increases and 5% cuts to government administrative costs. The House DFL has not yet detailed its funding plan.

“We have billions of dollars available to fully protect workers and businesses from unnecessary tax hikes, and ensure that government is not profiting off relief dollars intended to help Minnesotans,” said House Minority Leader Kurt Daudt, R-Crown, said in a statement.

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Lawmakers will have to come to an agreement over the next two-year state budget before session adjourns.

Caroline Cummings