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California Lawmakers Introduce Dueling Budget & Tax Plans

2 min readBy: Joseph Bishop-Henchman

The first iPod hadn’t come out yet when California last had a balanced budget. Buoyed by the phantom profits of the dot-coms and housing, officials locked themselves into an unsustainably large state government on an unsustainable growth path. The Golden State has borrowed, imposed temporary taxes, grabbed aid to local governments, drawn down dedicated funds, engaged in accounting gimmicks, and even issued IOUs to avoid coming to terms with their structural imbalance. A decades’ worth of accumulated deficits has snowballed into something that’s not too far from insolvency.

Gov. Jerry Brown (D) sought to put the renewal of a series of expiring income and sales taxes on the June ballot, but lacked enough Republican legislative votes to do so. He’s still pushing the idea, releasing a revised budget plan yesterday that includes vehicle license taxes, higher income taxes, and single-sales factor apportionmentApportionment is the determination of the percentage of a business’ profits subject to a given jurisdiction’s corporate income or other business taxes. U.S. states apportion business profits based on some combination of the percentage of company property, payroll, and sales located within their borders. .

Last week, Republican legislators offered their budget blueprint, which cuts state payroll by $1.1 billion, “temporarily” shifts $2.4 billion from mental health and early childhood programs, $1.3 billion in cuts to other social services, and a $1 billion savings by reducing waste in Medi-Cal and outsourcing prison healthcare and court reporting services. The Republican plan also assumes $5 billion in unanticipated revenues from the growing economy (the state has seen $2.5 billion in such revenues since January.)

State Senate leader Darrell Steinberg (D) has put forth a bold counterproposal. From the Los Angeles Times:

Steinberg’s proposal (SB 653), which easily cleared its first Senate committee on a party-line vote last week, would be revolutionary. It would give local governments and citizens more control over taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. ing.

This scares business and antitax interests that have had the state Capitol pretty much wired and can conveniently influence California tax policy.

Under Steinberg’s bill, counties and school districts would have a huge menu of potential taxes to choose from – subject to local voter approval – in raising money for services, including K-12 education.

For the first time, they could impose local income taxes. They could hike the sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. and the vehicle license fee. They could boost levies on liquor, tobacco and soft drinks. And they could enact their own tax on oil production. For starters.

This isn’t just a Steinberg pipe dream. His bill could be passed on a simple majority vote with no Republican support.

California’s budget, according to Gov. Brown’s revision, stands at $132.5 billion this year. The unresolved gap between desired spending and project revenues stands at $9.6 billion.