Dems Push Tax-Hiking Budget Plan

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The Democrats in the state legislature say they've come up with a balanced budget, and they're ready to move it forward. To balance a budget that was $15 billion in the red, the Democrats have proposed billions in taxes. They say it'll close the deficit and put an end to the problem of deficits year after year. KPCC's Julie Small reports, the Democrats' budget plan is almost certainly "dead on arrival".

Julie Small: After months of saying they would, Democrats finally did propose $9.7 billion in new taxes. Assembly Speaker Karen Bass of Los Angeles says they mostly want to restore budget cuts California made in the late 1990s.

Karen Bass: We're talking about a roll back of the tax breaks that were given in years when the economy was strong. Well, the economy's not strong now, so we need to roll that back, so line in the sand? Yeah.

Small: The budget plan proposed by the Democrats calls for higher income tax brackets. Couples' earnings that exceed $321,000 would be taxed at 10%. Double that income, and the bracket moves up to 11%.

Former governor Pete Wilson enacted those brackets temporarily about a decade ago. Democrats want to make them permanent. That would bring in about 5-and-a-half billion dollars in new revenue. Senate President pro Tem Don Perata says it's only fair.

Don Perata: We're asking those who have benefited the most to pay the most, who have made California what it is and should want to keep it the way it's been.

Small: That includes corporations. Businesses would lose their net operating loss write-off for three years. Democrats say their plan would eliminate the state's "structural deficit," the problem of spending more than California earns every year.

Republicans have already written off the plan. Assemblyman Roger Niello of Sacramento, who co-chairs the Assembly Budget Committee, called the budget proposal a dysfunctional approach to the state's financial crisis.

Roger Niello: When the economy's weak and revenue growth falls, the worst solution is to finance further increased spending with a tax burden, a massive tax burden on a very weak economy.

Small: Niello says California's already too dependent on income taxes, both personal and corporate. That creates a volatile revenue stream. Niello says the Democrats' plan would increase that volatility and not necessarily bring home the bacon.

Niello: Those proposals, especially in a weak economy, have been proven time and again not to produce the revenue that is expected.

Small: Democrats may have drawn their line in the sand, but they can't compel Republicans to toe that line. Now begins the annual budget tug of war, only this year, one side has to win by August 1st. That's when the state government runs out of cash and will have to borrow to pay its bills. And all that will do is make California's bad fiscal crisis even worse.