Wealthy Minnesotans and some corporations would see their taxes increase under a plan state House Democrats unveiled Monday, which would grant tax breaks to others and devote more money to schools and child care.

The state's financial outlook has vastly improved since a year ago, but leaders of the DFL-controlled House join Democratic Gov. Tim Walz in contending additional tax dollars are needed for education and working families.

"We're raising sustainable, progressive revenue in our tax bill to make sure that we can back up the commitments that we're making to students, and families and workers today," said House Speaker Melissa Hortman, DFL-Brooklyn Park, as Democrats released their tax plan for the next two years, along with spending proposals for education, workforce and other budget areas.

Republicans, who control the Senate, have drawn a firm line on taxes. As Senate leaders proposed their overall budget numbers last month, they said billions in incoming federal aid and a projected $1.6 billion surplus in the next two-year budget render tax increases unnecessary.

"Democrats' billion-dollar tax hike will hurt the very businesses who have struggled so much over the past year, and slow down hiring as our economy gets back on its feet. Fortunately, these tax hikes are dead on arrival in the Senate," Rep. Greg Davids, the Republican lead on the House Tax Committee, said in a statement.

Many elements in the House proposal match Walz's latest budget. The governor revised his budget in mid-March, scaling back nearly $1 billion of the tax increases he had outlined in January. But he maintained his push for a new fifth-tier income tax bracket, an idea that's also included in House Democrats' proposal.

Glen Stubbe, Star Tribune, Star Tribune

A married couple making more than $1 million who file their taxes jointly, or a single person earning more than $500,000, would encounter a new 11.15% tax rate under the House bill, slightly higher than the 10.85% top rate in Walz's plan. House Democrats also aim to bring in tax revenue from corporations' profits that are being sheltered abroad.

Senate Majority Leader Paul Gazelka, R-East Gull Lake, posted a video Monday saying the fifth-tier income tax bracket is "the last thing we need" and said it would hurt small business owners.

Meanwhile, Democrats would expand the state's working family credit by about $60 million, increase housing aid and offer property tax relief, said Tax Committee Chairman Paul Marquart, DFL-Dilworth. And a Minnesotan earning less than $150,000 who received unemployment benefits would get a tax break on up to $10,200 of that income.

Both the House and Senate want to address taxes on the forgivable Paycheck Protection Program loans that businesses received from the federal government during the pandemic, but they take different approaches. Senators, in a bipartisan move, passed a measure that would fully lift state taxes on those loans. That conforms with Congress' decision to make the aid federal tax-free. The new House bill, like Walz's plan, would cap that tax exemption so businesses that got more than $350,000 in the loans would have to pay some taxes.

"Over 90% of all loans will see a complete tax exemption," Marquart noted.

In addition to the tax bill, DFL legislators presented plans Monday to increase per-pupil education spending by 2% each of the next two years. A Senate education bill posted Monday would not increase per-pupil funding over the next two years, but Senate Republicans are highlighting additional federal funding for schools.

Minnesota is expected to get nearly $4.9 billion for state and local governments through the federal stimulus bill. Minnesota Management and Budget said Monday the state has not yet gotten word from the U.S. Treasury Department on when the dollars will land in state coffers.

Jessie Van Berkel • 651-925-5044