I have good news and bad news this morning. The good news: there’s finally some action on the state budget. The bad news: it probably won’t amount to a hill of beans.

Democrats in the Assembly and the state Senate reconciled the last of their differences late Tuesday, producing a budget that proposes to raise taxes on corporations and high earners by $8.2 billion as well as stepping up tax enforcement to a tune of an additional $1.5 billion.

The plan, however, faces almost certain defeat as Republicans have vowed to crush any tax increases, even as the state faces a $15.2 billion shortfall. Democrats, who control the Legislature, need a few Republicans to go along with their plan because the state requires a two-thirds majority vote on the budget.

“After we’re done (rejecting the tax increases), we can all go back to square one to figure out how we get a supermajority vote on this budget,” GOP Assemblyman Roger Niello told The Sacramento Bee.

The Democrats’ plan, according to a press release sent out late Tuesday, ”rejects the Governor’s deep cuts in education and health care and includes $9.7 billion in new revenue.”

It calls for imposing a new 10 percent tax rate on taxpayers filing joint returns with taxable income above $321,000 and 11 percent on those with incomes above $642,000. The state’s personal income tax rates current range from 1 percent to a high of 9.3 percent. The new tax brackets are projected to generate an additional $5.6 billion in revenue.

Another component of their proposal calls for closing a tax loophole that allows large corporations to carry forward Net Operating Losses incurred in one year and use them as a deduction against earnings in subsequent years.  That’ll generate an estimated $1.1 billion in additional revenue.

Beyond that, there are proposals to suspend tax adjustments for upper-income earners ($815 million in additional revenue), raise the top franchise tax rate on businesses from 8.84 percent to 9.3 percent ($470 million) and roll back an income tax exemption credit for taxpayers with adjusted gross income of more than $150,000 ($215 million).

The Democrats’ press release, which largely sticks to the facts of the plan, includes this overtly political statement: “Democrats, the Governor and even many Republicans know lawmakers can’t solve this year’s budget by cuts alone. The state has cut $12.3 billion during the last three budgets. Democrats know the fat is long gone, that a cuts-only approach would go deep into the bone of what the state provides.

“There is no free lunch: Quality education, health care, fire protection and law enforcement all require additional revenue.”

Strong words, but I doubt they’ll get the votes they need. As Niello said, we’ll be headed back to square one.

Posted in: California Legislature • State budget |

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