Legislative
leaders released their latest budget proposal, called the "Jobs
Budget," which again is heavy on tax increases and light on boosting the
state’s economic competitiveness. Touted
as "saving 430,000 jobs," the plan would increase taxes by more
than $5 billion and continue speculative and one-time spending to support
ongoing programs.
Key
tax changes include:
-
A
permanent tax rate increase of one percentage point for every personal income
tax bracket except the top bracket. This increase in personal income tax rates
would be for the 2010 tax year, so would in effect be retroactive to all income
earned this year, even thought it would be implemented in the fourth quarter.
Also, the one-quarter percentage point "temporary" increase in PIT
rates enacted in 2009 would be made permanent. -
A
permanent increase in the vehicle license fee of one-half percentage point. The
rate would rise to 1.65 percent, and would remain at that rate permanently,
rather than dropping back to its 0.65 percent rate, as contemplated by the 2009
"temporary" tax hikes. -
The
state sales tax would be reduced by three-quarters of a percentage point in
this budget year and another three-quarters percentage point the following
year. Added to the expiration of the temporary one-cent increase, the state
sales tax rate would drop from six percent today to 3.5 percent in 2011-12.
Local sales taxes levied by cities, counties and transportation districts would
not be affected.
The
net effect of these transactions would be tax increases ranging from $1.7
billion to $3.3 billion a year over the next six years.
Legislative
leaders also calculated the increased deductions that taxpayers, who itemize on
their federal income taxes, would enjoy. These deductions would ostensibly
cover the net tax increases over the first two years of the new tax regime, and
account for all but about $85 million to $145 million of the net new taxes over
the next four years. These are aggregate estimates; obviously, some taxpayers
would pay more from the beginning, others would receive net tax cuts
throughout.
Other
tax increases are focused on corporate taxpayers.
-
Impose
a new severance tax of 10 percent on the value of oil produced only in
California. -
Continue
suspending the use of net operating loss carry forward deductions and postpone
the new NOL carry back deduction for two years. -
Suspend
the new ability of unitary groups to fully utilize certain tax credits by
sharing them with their affiliates. -
Suspend
the new tax incentive for companies to add jobs and facilities in California,
also known as the "single sales factor" formula in calculating
corporate income tax apportionments. -
Collects
sales taxes from out-of-state vendors, such as Amazon, that do business with "affiliates"
in California. This "New York model" was considered and defeated
last year.
These
business tax increases would amount to about $2.1 billion in new revenues for
this budget year.
Most
of these tax increases would require a two-thirds vote to enact, pursuant to
the constitution. However, the oil severance tax is apparently being paired
with a complicated transaction involving reducing a portion of the state sales
tax, ostensibly allowing the entire package to be approved by a majority vote
of the Legislature. This transaction is likely unlawful, and the Governor has
announced in the past that he would veto similar maneuvers.
In
addition to the $4.5 billion in tax increases, the leadership proposal also makes
what it claims is $8.3 billion in budget cuts, assumes $4.1 billion in federal
fiscal relief, assumes an improved economy will boost existing revenue streams
by another $1.4 billion, borrows and shifts revenues from other sources by $2.7
billion, and suspends the application of the Proposition 98 school funding
guarantee, to free more than $3 billion for other General Fund purposes. (This
last action was necessary to prevent a disproportionate amount of revenues from
the tax increases to automatically flow to schools, and probably should not be
included as part of the overall $8.3 billion in spending cuts.) Some of the
cuts are, say, optimistic, but many others seem to represent real program
reductions. However, the reliance on federal funds, optimistic revenues, and
fund shifts and loans could perpetuate deficit financing should the savings or
revenues not materialize.
Republicans
and the Governor dismissed this latest budget proposal by the Legislative
leadership, stating that it "doesn’t create jobs, doesn’t
reform pensions, and doesn’t significantly reduce spending." While advertised
as a "jobs budget," it truly has no provisions that would encourage
job creation by the private sector and economic growth.
Senate
leader Darryl Steinberg identified the job savings for local government (20,000
jobs), public schools (35,000 jobs), child care (50,000 jobs), and 300,000 jobs
related to "healthcare spending and safety net federal funds."
Truly the job "creation" has been in unionized government or
government-supported employment. Private sector employees and small businesses
must still wait for their signal for growth.