MINNEAPOLIS (AP) _ Gov. Tim Walz has proposed raising taxes on the wealthiest Minnesotans and large companies to help plug a projected $1.28 billion gap in the next two-year budget.

A million Minnesota families will see cuts to their income tax. We're gonna ask the top point-seven percent to pay a little bit more. So one percent (tax increase) on the one percent (highest income) is about what we're looking at."

He also proposed in his budget announcement Tuesday a 3.5 percent increase in funding for K-12 education over two years, 50 million dollars in forgivable loans to struggling businesses, and expanding the Working Family Tax Credit for over 300-thousand households.

The announcement sets the stage for months of debate at the Capitol.

Republicans who control the Minnesota Senate have already said they won't accept tax increases to balance the budget.

Senate Majority Leader Paul Gazelka says the state should tighten its belt and tap its budget reserve instead.

we are not balancing the budget with tax increases. The state's "rainy day" budget reserve can be used to protect people from hurtful tax increases that will further stretch their family budgets and harm Minnesota's economy.

The Governor is proposing just .3% in cuts ($150 million) out of a $52-billion budget.

The Minnesota News Network contributed to this story.