Fight over taxes looms between Democrats, Gov. Jerry Brown

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Gov. Jerry Brown orchestrated the successful push for temporary sales and income taxes on Californians three years ago to help ease the state out of recession and close a multibillion-dollar budget gap.

The financial crisis has passed and the economy is rebounding, but the fight over taxes is about to resume.

The Proposition 30 taxes are supposed to phase out by 2018. However, social welfare groups and Democrats in the Legislature, eager to expand programs that suffered cuts during the economic downturn, already are eyeing an extension, along with a host of other taxes, from extending sales taxes to services, increasing taxes on oil and tobacco, and even restructuring Proposition 13 that strictly limits property taxes.

They are likely to meet resistance from Brown. Since returning to Sacramento four years ago, the 76-year-old Democrat has successfully positioned himself as a fiscal moderate with a firm hold on the state's check book, an image that propelled him to another term that began this month.

He sold Proposition 30 to the voters as a temporary bridge to lead the state out of recession with a quarter-cent sales tax through 2016 and higher income taxes on income above $500,000 through 2018. Labor-allied groups want to extend the tax, which is forecast to bring in more than $7 billion this year, but Brown has repeatedly said he still views it as a temporary measure.

He's also steered clear of discussions about taxing oil production and expressed skepticism about a proposal from Sen. Robert Hertzberg, who wants to extend the sales tax to services.

"Taxing new people is always difficult," Brown said this month. "If you tell people that their Pilates class will be taxed at 8.5 percent, they may not be as yoga-happy as they were before."

Democrats and Republicans agree that California's overreliance on income tax creates volatility, leaving the state dependent on a handful of millionaires and billionaires. But they usually do not agree on what to do about it, and the impetus for reform often disappears when the budget stabilizes.

Betty Yee, the new state controller and former member of the state tax board, said the economic rebound makes this a good year to talk about reforming California's tax structure. She said she plans to bring divergent groups together to study the various proposals, but said she believes overhauling the state's tax structure would be a better long-term solution than the piecemeal efforts.

"With all the budget cuts that have taken place, you have all the interest groups that are looking for their own revenue source," she said. "There's going to be a tension between those proposals and the various interests and programs that will be supported by them, against our ability to really pursue comprehensive tax reform."

Among the social advocacy groups pushing for taxes is California Calls, made up of 31 labor union, civil rights and faith groups. Policy director Veronica Carrizales said the group has not yet decided what form its tax proposal will take, but members want to close "loopholes" for the wealthy.

"The governor, he's sticking with his message of, you know, this new reality, this new normal that everybody has to live within their means. It will take an effort by community groups and other groups to put pressure on the governor," she said. "It's still raining for many people in California."

Hertzberg, a former Assembly Speaker who returned to the Legislature this month, was first out of the gate with SB8, a proposal to extend the sales tax to services and dramatically cut personal income tax rates. Money generated from his proposal, SB8, would go to K-14 education, universities and local governments. It would also help pay for an earned income credit to offset the higher sales tax for low-income people.

The idea comes from years of study by bipartisan groups to which Hertzberg belonged and is aimed at modernizing what he says is an outdated tax structure. Still, he knows he has a lot of work to do to convince business groups, Republican lawmakers and the Democratic governor that it is the right approach.

"He understands the problem we're trying to solve, and hopefully we can move it down the road a little bit and help him understand it. I don't know, I just don't know," Hertzberg, D-Van Nuys, said of Brown. "I have confidence in his intellect."

Even if Brown rebuffs most or all of this year's attempted tax grabs, many are likely to resurface in the form of 2016 ballot initiatives.

Next year is seen as the best opportunity in decades for ballot initiatives, because low voter turnout in 2014 means campaigns will need fewer signatures, and therefore less money, to get to the ballot. One group has already submitted language to place a $9 billion school construction bond on the ballot — after being rebuffed by Brown.


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