Gov. Mark Dayton is dramatically retooling his budget proposal and will scrap his heavily criticized tax on businesses services.

Dayton made the announcement Friday morning at the TwinWest Chamber of Commerce meeting, his administration said.

“I take seriously the concerns of the business community, a business community that has invested in Minnesota and wants to stay here,” Dayton said earlier in the week. To those threatening to move their operations to low-tax states, “that’s exactly the opposite of what I want to achieve, which is more jobs and better jobs for Minnesota.”

Without the tax on business services, Dayton will no longer have the money for his proposed $500-per-family property tax rebate.

Dayton endured blistering criticism for nearly two months as business leaders hammered on his budget proposal that called for a menu of new taxes on business services, like legal and accounting fees. The deluge of criticism came has DFL legislative allies provided scant support, even publicly questioning the viability of the plan at the Capitol. Dayton suddenly found himself in a one-man battle against some of the state’s most powerful business interests, trying to convince companies to cough up billions of dollars to boost state spending.

A new economic forecast that slashed the projected deficit to $627 million from $1.1 billion dollars gives Dayton the opportunity to retool his budget outline, mute criticism from businesses and find a plan with a better shot at passing the Legislature. For his budget to get rejected among a Legislature chalk full of likeminded DFLers would have been a major political blow as Dayton begins mapping out his re-election plans.

Dayton has spent the last few days putting more distance between his administration and the plan.

“I said from the outset, mine is the first word in this discussion,” Dayton said. “I never thought my proposal was going to pass through the legislative process and become law, as initially proposed. It was to launch a discussion.”

Dayton had returned to focusing on a proposal that largely helped get him elected – his pledge to raise taxes on high earners. That initiative remains a crucial pillar of the new plan and one that even his biggest critics expect he will finally achieve this year.

“My goals were to reform taxes overall in Minnesota and to make taxes fairer for middle-income families,” said Dayton, highlighting his income tax hike on high earners. “That’s what I have been championing in Minnesota for four years, before I was elected, after I was elected and continue to.”