Updated at 4:31 p.m.

Budget negotiations appeared to break down at the Capitol Wednesday afternoon after Gov. Mark Dayton offered Republicans two new offers -- both including tax increases.

One raised the tax on cigarettes by $1 a pack. The other included a temporary 2% income tax surcharge on millionaires. Both proposals also featured expanded school shifts and health care surcharges.

“A tax increase in general is a non-starter with our caucus," said House Speaker Kurt Zellers. He added: "Things went backwards today."

Dayton responded that if things went backward, it was the Republicans' fault.

“If this was a step backward, as I was told someone said, then they took the step backward," Dayton said. "I took a step forward to try to resolve this.”

Republican leaders ruled out both tax proposals, but did not reject the offer altogether. Koch said they would "bring it back to the workshop."

We will update this post shortly with more information on today's talks.

7-6-11 Dayton Offer Letter