California Democrats propose tax changes to balance budget

A view of the California State Capitol February 19, 2009 in Sacramento, California.
A view of the California State Capitol February 19, 2009 in Sacramento, California.
Justin Sullivan/Getty Images

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State Democrats unveiled a budget proposal Tuesday in Sacramento to close the state’s $19 billion deficit.

The Democrats’ plan would raise personal income tax by 1 percent for all Californians – except for the top bracket earners. It would also increase the state’s vehicle licensing fees by 0.5 percent. Here’s the trick: Californians would be able to deduct those state tax increases from their federal taxes. Democrats would also cut the state sales tax 1.75 percent.

Senate leader Darrell Steinberg (D-Sacramento) says under the plan, California taxpayers would actually come out ahead – and the state government would gain nearly $2 billion in revenue.

"We’ve hit as close to a sweet spot as ever you will find," Steinberg exclaimed. "More money for the state, more money from Washington, D.C., a net tax cut for Californians across income sectors."

But Republican Senate minority leader Dennis Hollingsworth (R-Murietta) says the plan leaves a sour taste in his mouth.

"The problem is we looked at it and it doesn't work," Hollingsworth said. "It amounts to a massive tax increase on the working families in California, it amounts to massive tax increase on those who don't itemize and it also amounts to a tax increase on folks who are hit with the alternative minimum tax."

Governor Schwarzenegger’s press secretary Aaron McLear says the Democrats’ plan has little appeal.

"Increasing income taxes on everybody in the state I don’t think makes any sense," McLear insisted. "The governor does not believe we should punish the taxpayers to solve our problem. He believes we need to just spend the money we have just like every California family and business is doing right now."

Democrats also want to delay corporate tax breaks and they’ve proposed some additional cuts to state spending.

McLear says the one good thing about the Democrats' plan is that now, there is one.

The state government is a month into the new fiscal year. The sooner lawmakers can agree on a budget that pays the bills, the better.

The governor’s renewed worker furloughs to save cash. The state controller’s talking about issuing IOUs to pay California’s bills.