Ever since California voters recalled Democratic Gov. Gray Davis in 2003 and replaced him with Republican Arnold Schwarzenegger, Sacramento has been passing gimmicky state budgets that did not raise taxes, but also kicked structural deficit spending into the next year.
Well, the party's over.
In September, Schwarzenegger signed another kick-the-shortfall budget. Then the Wall Street meltdown caused capital gains to disappear, rich people's income to retract and state revenues to shrink. As the Legislative Analyst reported this week, the state budget shortfall could reach $28 billion over the next two years. State Department of Finance spokesman H.D. Palmer noted the drop in state revenue represents "not a trend, but a seismic event."
The earth has moved. The anti-tax governator has called a special session to address the budget shortfall, and he has renewed his call for the Legislature to raise taxes. Schwarzenegger has proposed more than $10 billion in spending cuts on education, health care and social spending through 2010. And $14 billion in tax increases, including a "temporary" 11/2-cent increase in the sales tax, an extension of the sales tax on such services as car repairs and veterinary (but not legal) bills, a severance tax on oil production and a 5-cents-per-drink spike in the tax on alcohol.
Why not squeeze the rich more? In California, the top 1 percent of taxpayers pays 40 percent of personal income taxes -- which makes revenues rise and plunge wildly. A sales tax is more stable and would force those in the underground economy to contribute to the services they nonetheless enjoy.
On Tuesday, Legislative Analyst Mac Taylor released a report that presented other options. Schwarzenegger's 11/2-cent increase, Taylor noted, would increase the average state and local sales tax to about 9.5 percent -- the highest average rate in the country. Therefore "the Legislature should also consider a smaller sales tax increase, say a 1-cent increase." Taylor also suggested a temporary 5 percent income tax surcharge and raising the vehicle license fee from .65 percent to 1 percent.
Hey, maybe the money will fall from the sky. Assembly Speaker Karen Bass thinks Washington can fork over $5 billion per year for three years. If Washington can reward Wall Street greed, why not capital greed? Although, that still won't balance Sacramento's books.