Minnesota Governor Mark Dayton on Tuesday unveiled his budget proposal for the two-year period beginning July 1—one that reduces the corporate tax rate, increases income taxes on the wealthiest Minnesotans, freezes property taxes on businesses, and makes dramatic changes to the state’s sales taxes.

Dayton said his proposal would close a projected $1.1 billion budget deficit but would also increase spending. The plan involves $37.9 billion in expenditures; the state was on course to spend $35.2 billion in the current two-year budget, according to a Star Tribune report.

Dayton’s budget would place a two-year freeze on business property taxes. It would also reduce the corporate tax rate from 9.8 percent to 8.4 percent, while eliminating what Dayton calls “unfair corporate tax loopholes” such as “foreign royalty subtractions” currently enjoyed by certain businesses.

The governor’s tax overhaul would reduce the sales tax rate while also making two significant—and controversial—changes to broaden the sales tax base: The budget would reduce the state’s sales tax rate to 5.5 percent—but it also calls for collecting sales taxes from online transactions and taxing clothing items that cost more than $100. Dayton would also raise taxes on cigarettes and tobacco.

The budget proposal would boost income taxes for the wealthiest 2 percent of Minnesotans—married couples earning at least $250,000 or individuals earning $150,000 or more.

Meanwhile, Dayton said his budget would provide $1.4 billion in property tax relief to Minnesotans by giving rebates of up to $500 each to Minnesota homeowners.

The budget also calls for increasing education programs and boosting K-12 funding by $52 per student. For higher education, it invests an additional $80 million in the Minnesota State Grant Program, marking the largest funding increase in direct student aid in more than 25 years, according to Dayton’s office.

“If the investments in my budget proposal are made, they will yield returns in new jobs, private investments, vibrant communities, and additional state and local tax revenues, and they will help keep our economy moving forward,” Dayton said in a prepared statement. “They represent my best judgment about what Minnesota needs to grow our economy, expand our middle class, improve our quality of life, and take care of those most in need.”

The governor’s complete budget recommendation can be accessed at the Minnesota Management and Budget website by clicking here.

A report by the Star Tribune points out that, although Dayton will have a DFL-controlled Legislature with which to work, convincing the state to support his likely controversial proposals may present a significant challenge.