California Governor Brown seeks $7 billion from tax hikes

Reuters News
Posted: Dec 01, 2011 7:08 PM
California Governor Brown seeks $7 billion from tax hikes

SAN FRANCISCO (Reuters) - The wealthy in California would pay more income tax and shoppers would face a sales tax increase under a measure to be unveiled by Governor Jerry Brown to raise $7 billion for the cash-strapped state.

Details of the initiative were being nailed down on Thursday with lawmakers, advocates and labor unions so it could be made public as soon as Friday, according to sources in the state capital of Sacramento familiar with the measure.

Brown aims to put the initiative on next November's ballot, which may see several more tax measures if proponents manage to gather at least half a million signatures to qualify them. The measures are likely to face tough opposition from the state's entrenched anti tax activists.

Brown's plan would tack on a half-cent to the state sales tax. It would also impose income tax increases of 1 percent to individuals with income starting at $250,000 a year, 1.5 percent for those who make between $300,000 and $500,000 a year and 2 percent for those making more than $500,000 a year.

The levies would expire at the end of 2016.

The governor's initiative would circumvent the legislature, where a two-thirds vote is needed to increase taxes. Brown's fellow Democrats control the legislature but are a handful of votes short of being able to pass tax bills on their own, allowing Republicans to effectively block tax plans.

Republicans blocked Brown's tax proposals earlier this year, which eventually led the governor and Democratic lawmakers to approve a budget on their own. It closed a roughly $10 billion budget gap with deep spending cuts, fees and the expectation of a $4 billion surge in revenue.

Driving the tax measures is the fact that assumptions in the state budget look overly optimistic.

A state budget watchdog agency recently said $3.7 billion of the $4 billion in added revenue forecast in the budget will not materialize.

State officials will soon mull how much spending they will need to cut if revenue misses projections and they face the prospect of a nearly $13 billion budget gap for the state's next fiscal year.

That deficit could be narrowed with revenue raised under Brown's tax plan, which would also funnel money to politically popular education spending.

Additionally, the measure would help fund Brown's plan, approved by lawmakers, for county and local jails to house low-level offenders whose numbers have helped swell the state's prison population.

California is under court order to ease overcrowding in its prison system.

Supporters of Brown's proposals say voters may be ready to increase taxes, especially on the wealthy, if education gets a healthy chunk of the revenue. They point to the recent election in which voters approved most local tax and bond measures.

Critics counter that drawing conclusions from local elections for a statewide contest is dangerous, adding that statewide tax increases are always difficult to sell to voters. They overwhelmingly rejected extending temporary tax increases in 2009.

(Reporting by Jim Christie; Editing by Andrew Hay)