The Senate's Democratic leaders unveiled a state budget plan June 11 that they said would increase taxes by $11.5 billion, but they did not indicate what tax hikes they have in mind. The plan follows on the heels of last week's unveiling by Assembly Democrats of a plan that includes $6.4 billion in unspecified tax increases.
Senate President Pro Tem Don Perata, announcing the vague proposal, said: "There's not enough money (in the governor's budget proposal) to fund next year. We're proposing to raise taxes."
The San Jose Mercury News reported that Senator Perata and Senator Denise Ducheny, the point person on the budget for the Senate Democrats, "wouldn't specify which taxes to raise but mentioned several possibilities: the sales tax, a tax on services, income taxes, corporate taxes, the vehicle license fee and the excise tax on alcohol."
Senator Ducheny was quoted in the Ventura County Star as saying the tax plan should include "lots of little things" rather than a large increase in any specific tax.
Governor Arnold Schwarzenegger's spokesman said the governor is glad the Senate Democrats "finally put some ideas on the table," but rejected the call for higher taxes. "We believe that Californians are sending enough of their money to Sacramento, and we ought to live within our means," Press Secretary Aaron McLear said.
The Budget Conference Committee held its first meeting June 12. The committee is going through line items where the Assembly Democrats' budget and the Senate Democrats' budget are not in sync. The committee is deciding which version to use in its final budget. (Cal-Tax: Neither the Assembly nor the Senate approved the budget language before it went to the conference committee, and none of the committee's decisions requires a two-thirds vote that would necessitate support from Republicans.)
Lawmakers and the governor are facing a $15.2 billion structural deficit in the budget, according to the Department of Finance.
Senator Perata said the Legislature will not meet its constitutional deadline of June 15 to send a budget to the governor. He also said the state will not have a budget in place by July 1, the beginning of the 2008-09 fiscal year, and added that he hopes to have a budget enacted by August 1.
Assembly Republican Leader Mike Villines blasted the proposed tax increase. In a written statement, he said: "Californians pay more than enough in taxes every year, but the Legislature spends more than we take in on new programs and bigger government we cannot afford. The answer to our budget problems is not higher taxes, but spending restraint."
(Sources: San Jose Mercury News, June 12; Ventura County Star, June 12; Press release from Assembly Republican Leader Mike Villines, June 11.)
In related news:
Controller: Sales and Corporate Tax Receipts Lagging, Personal Income Tax Collections Strong. State Controller John Chiang reported June 10 that the state's revenue is tracking very close to the projections made in the governor's May budget proposal, with strong personal income tax collections mitigating weaker-than-expected receipts from the corporate tax and sales tax.
Overall May revenues were just $1 million less than projected in the May revision of the budget. Personal income taxes came in $238 million higher than expected, while sales taxes were down $124 million and corporate taxes were down $90 million from the projected amounts. In percentage terms, the PIT came in 12.1 percent higher than expected, while sales taxes came in 3.5 percent lower and corporate taxes came in a whopping 36.1 percent lower than predicted in the mid-May budget plan.
The report also revealed that in the first 11 months of the current fiscal year, the state has spent $10.2 billion more than it has collected in revenue, including $720 million in May alone.
Commenting on the state's finances, Controller Chiang said: "Personal income tax collections remain strong as we process the final payments from the 2007 calendar year. Next month we will start to get an idea of how the slowing 2008 economy will affect this source of revenue, particularly from high-income taxpayers. The weakness of the sales tax should have everyone concerned. The declines in consumer spending illustrate a lack of consumer confidence that not only affects the state budget, but also local governments throughout California."
(Cal-Tax: When corporate income tax collections are down 36 percent from a projection that is only a few weeks old, that is a sign that California businesses are struggling. Heaping billions of dollars of new taxes on businesses certainly wouldn't help the situation. Businesses that couldn't pass the added costs along to consumers would have to look for other ways to meet the burden, such as by cutting jobs and benefits.) (Source: Press release from Controller John Chiang, June 10.)
Cal-TaxReports June 16, 2008
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