July 9, 2008

And Now for Something Completely Different

BUDGET DAY PLUS 8-- With year after year of California budget impasses scarred by sharp partisan debates over spending versus revenues, it seems almost silly to say that there hasn't been much of a debate about a tax increase. But there hasn't.

And so, in the immortal words of Monty Python, now for something completely different...

Every multi-billion dollar budget deficit over the last few years has been papered over with an elixir of spending deferrals, accounting changes, and borrowing. But this time, the Legislature's Democratic majority seems ready to wield the very budget balancing tool that all of those schemes were designed to avoid: higher taxes.

The budget plan adopted by the joint budget conference committee last night (and, to be fair, adopted without any Republican support) calls for $9.7 billion in additional tax revenues, with more than half that amount coming from higher income taxes for high-income earners. Also in the mix, as reported last night, are more tax revenues from businesses and middle-income earners, as well as a new push to collect taxes that aren't being paid.

Of course, the tax debate isn't new for some Democrats, most notably Senate President pro Tem Don Perata. The Oakland legislator has been calling for new tax revenues for several months, and told reporters today that the proposal on the table is about fairness, in light of several years of cutting back programs and services for the most needy.

"We're asking those who have benefitted the most to pay the most," said Perata.

And pay the most they would. Adding two new tax brackets for wealthy Californians -- a 10% rate for joint returns above $321,000 and an 11% rate for joint returns above $642,000 -- would reinstate taxes levied during the state budget crisis of the 1990s. But those tax increases were temporary; Democratic budget staffers confirmed today that this proposal would make those tax rates permanent.

If enacted, it would mean California would have the highest state income tax bracket for the wealthy in the nation, according to data compiled by the Federation of Tax Administrators. And the very wealthy -- those earning more than $1 million -- would be subject to a 12% rate, because of the surcharge imposed by voters through Proposition 63 in 2004 (money for mental health programs).

Needless to say, Republicans seem almost giddy in these early hours of the debate. "That's a dysfunctional approach to the crisis that we're in," said Assemblymember Roger Niello (R-Sacramento) in comments to reporters this morning. "Those proposals, especially in a weak economy, have been proven time and again not to produce the revenue that's expected."

Niello and his fellow Republicans want more cuts in spending to resolve the $15 billion shortfall; Democrats, who are proposing to close the gap with slightly more in cuts than in tax revenues, adamantly refused such suggestions today. "We can't cut anymore," said Assembly Speaker Karen Bass. And so far, GOP legislators have not submitted specific cuts that would, alone, balance the budget.

So perhaps, for once, there might be a real debate about appropriate taxes and appropriate expenditures. One that forces Californians to think about what services they want, and what they're willing to pay. That would, indeed, be something completely different in the annual summer slugfest over the state budget.