California Approves Budget; Taxes Going Up

February 19, 2009

Around dawn this morning, California approved its budget. Locked down until one more vote could be found to support the compromise package, and facing the suspension of construction projects today unless cash was found, it finally happened when Sen. Abel Maldonado (pictured right) joined two other Republicans in casting his vote in support. Maldonado had been one of several senators targeted for a potential switch; the sticking point with him was his list of demands in return for his vote:

  • Drop the gas tax increase part of the proposal
  • Suspends pay for legislators when they miss the budget deadline (this demand was rejected)
  • Freeze pay raises for legislators when the budget is not balanced
  • (Most controversially,) submission of a “top two” primary system for public vote, whereby all candidates run in a primary race and only the top two votegetters go on to the November ballot. Such a system has the pro of empowering moderate candidates that can draw from primary voters of all parties, but has the con of shutting out smaller parties statewide and even a major party in a district that is sufficiently gerrymandered.

Also changed was the income tax proposal, which transformed from an across the board 2.5% increase to an increase in each bracket by 0.25%, raising a further $400 million over two years. When confronted with the package, legislators initially rejected the open primary provision and, after a Democratic caucus meeting, approved it. The budget was then approved and everyone went home. Several provisions of the package require a public vote, which will be on May 19, 2009.

The vote of another Republican, Sen. Roy Ashburn, was secured with good-old tax credits and subsidies for favored industries:

For Ashburn’s support, legislative leaders included an amendment he backs that provides a $10,000 tax credit for those who buy new homes. The credit, supported by home builders, would be available starting in March and run through 2010. It would be capped at $100 million.

Californians would be able to use the credit to offset their state income taxes over three years.

Lawmakers also agreed to help the horse racing industry in his district — and throughout the state — by using $32 million in state funding each year to offset maintenance fees at fairgrounds.

And hugs from Democratic lawmakers:

After his speech, Democratic senators came over and hugged Ashburn, who had negotiated $100 million in tax credits to help home builders and tax breaks for horse-racing tracks.

I’d like to know how they plan on capping a tax credit—first come, first serve? Aside for $14.8 billion in cuts to projected spending over two years and $5.4 billion in additional borrowing, here are the tax changes:

Personal Income Tax

Income Levels

Current Rate

New Rate

Rate if Enough Federal Stimulus Money is Received

>$0

1%

1.25%

1.125%

>$7,168

2%

2.25%

2.125%

>$16,994

4%

4.25%

4.125%

>$26,821

6%

6.25%

6.125%

>$37,233

8%

8.25%

8.125%

>$47,055

9.3%

9.55%

9.425%

>$1,000,000

10.3%

10.55%

10.425%

Sales Tax (state and key cities)

City

Current Rate

New Rate

(State Base)

7.25%

8.25%

Los Angeles

8.75%

9.75%

San Diego

7.75%

8.75%

San Jose

8.25%

9.25%

San Francisco

8.50%

9.50%

Long Beach

8.25%

9.25%

Fresno

7.975%

8.975%

Sacramento

7.75%

8.75%

Oakland

8.75%

9.75%

Santa Ana

7.75%

8.75%

Anaheim

7.75%

8.75%

Bakersfield

7.25%

8.25%

Riverside

7.75%

8.75%

South Gate

9.75%

10.75%

Vehicle License Tax

Current Rate

New Rate

Statewide

0.65%

1.15%

Gasoline Tax

Current Rate

New Rate

Statewide

18¢/gallon

18¢/gallon
(unchanged)

California already had the sixth highest state-local tax burden in the country, as reported in our State-Local Tax Burdens report last summer.

More on California here.


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