California Passes Tax/Fee Switcheroo Budget; Governor Says He’ll Veto

December 19, 2008

From the Associated Press:

Democratic lawmakers on Thursday pushed through an $18 billion package to reduce California’s burgeoning budget deficit, but Gov. Arnold Schwarzenegger said he would veto it because it didn’t meet his demands for an economic recovery plan.

Schwarzenegger said California will continue on a path toward “fiscal Armageddon” since Democrats sent him a “terrible budget” that didn’t make deep enough cuts or include the kind of stimulus he wanted to boost the state’s ailing economy. California’s deficit is expected to hit $42 billion in the next 18 months.

“This package that they are sending down does really only do one thing, and this is punish the people of California,” he said at a news conference shortly after the vote.

We wrote yesterday why the passed plan is probably unconstitutional:

In short, we eliminate the gas tax and raise a bunch of other taxes so that it balances out, and is therefore not a net tax increase (new taxes – gas tax = zero) and doesn’t need a two-thirds vote. Then, when that’s all done, we’ll raise the gas tax but call it a “fee,” since fee increases don’t need two-thirds. So, the gas tax is first called a tax (since the taxes must zero each other out), and then it’s called a fee (to avoid the two-thirds rule).

This plan is absurd and probably unconstitutional. I will concede that it’s at least arguable whether a revenue-neutral plan qualifies as a “tax increase” necessitating a two-thirds vote. But the gas tax is either a tax or a fee, and that shouldn’t change depending on political expediency. Pick one or the other. I would argue that under California court rulings, it’s a tax because its purpose is to raise general revenue for general spending and not to provide a service to particular paying users. If it’s a tax it therefore cannot be increased without a two-thirds vote under California’s constitution.

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