The special session called to deal with the State’s fiscal emergency expired on Monday, and what has been the Legislature’s response? Business as usual.
Facing a two-year, $20 billion budget deficit, and urged by the Governor to implement more than $8 billion in spending cuts and revenue transfers this month, the Legislature is threatening to revert to form: raising taxes and using one-time solutions to pay for ongoing programs. (The “X8” below refers to the Legislature’s Eight Extraordinary Session.)
Item: Senate Bill X8 6 is awaiting final action on the Senate floor. It comprises an elaborate exchange of raising gasoline excise taxes and repealing the state sales tax on gasoline that would free up hundreds of millions of dollars in General Fund spending authority. But wait … there’s more. It would also – for one year – suspend some business tax incentives that would especially affect firms hard hit by the recession. The complicated transaction to raise some taxes and cut another ostensibly allows the Legislature to approve the measure with only a majority vote, since it is “revenue neutral.” But since thousands of income taxpayers would actually see their taxes increase, this is in fact a sham.
Item: Assembly Bill X8 8 is awaiting final action in the Assembly. It would require out-of-state companies with no presence in California, who are referred customers by “affiliates,” to collect sales tax on items they sell over the internet, by phone or by mail order. This is a clear violation of the US Constitution’s nexus rule and would cause the remote companies to cut loose their California-based affiliates, affecting potentially hundreds of firms and thousands of jobs.
Item: Senate leader Darryl Steinberg has proposed a new scheme to raise one-time money: requiring businesses and governments to withhold taxes for independent contractors. Facing an outcry from potentially affected businesses and government agencies, Sen. Steinberg has put the idea on ice for a few months, but expect to see it resurrected again during the summer budget scrum.
What all these ideas have in common is (1) they ostensibly could be approved with a majority vote of the Legislature and (2) they would raise large amounts of money in early years, but questionable revenues in succeeding years – effectively passing the buck to the next governor and next Legislature.