Taxable Talk

For Californians, there's no sign of a budget compromise. The Democrats are proposing massive tax increases; the Republicans won't consider a penny in new taxes; and Governor Schwarzenegger wants a solution but isn't putting any pressure on anyone.

The latest:

1. The Wall Street Journal ran an op-ed piece that proclaimed California is #1. But it's not number one in a good way; rather, it's leading the country in the tax rate. The Journal noted:

California faces a $15 billion budget deficit and Democrats who rule the state Legislature have proposed closing the gap with a $9.7 billion tax hike on business and "the rich." There's a movie that describes this idea: Clueless...

This latest tax gambit was unveiled, ironically enough, within days of two very large California employers announcing they are saying, in the famous words of Governor Arnold Schwarzenegger, "hasta la vista, baby" to the state. First, the AAA auto club declared it will close its call centers in California, meaning that 900 jobs will move to other states. "It costs more to do business in California," said a AAA press release, in the understatement of the year.

2. The Contra Costa Times published an op-ed piece from the "Proposition 13 Reform Tax Force" that advocates a split-roll property tax scheme. The op-ed doesn't mention that a split-roll has been defeated by the voters of California before. And that relatively low property taxes is about the only favorable tax factor in California.

3. Governor Schwarzenegger on Thursday broached the idea of a sales tax increase to balance the budget.

4. The Los Angeles Times published an article noting that economists are unsure of whether the Democrats' proposed income tax increase would actually bring in the revenue that the Democrats forecast. Patrick Fleenor, chief economist for the Tax Foundation, is quoted as stating, "But what is often missed is the firm that would have popped up in L.A. but is instead popping up outside Las Vegas. People on the cusp of moving to California or leaving California would certainly be affected by this [proposed tax increase]."

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Meanwhile, Democrats in the legislature are stating that there are no cuts to be made in programs and that only revenue increases will be considered. Republicans state the only thing they'll look at are cuts in programs. I'm leaving on vacation tomorrow. I'm very confident that California won't have a budget when I return on August 4th.

I don't watch soap operas on television. I should add the caveat that I don't watch much television, period. But all Californians are going to get to watch the annual installment of As the Budget Churns.

California has a statutory deadline of June 30th for enactment of a budget. As usual, that deadline has come and gone. California's constitution requires a 2/3 vote in order for passage of a budget. That means that Democrats must get Republican support for a budget or it can't pass.

Democrats proposed last week to increase taxes (shock, shock). Two new brackets would be added: a 10% bracket and an 11% bracket. They also proposed a hike in California's corporation tax (from 8.8% to 9.3%). They also defeated Governor Schwarzenegger's proposed budget cuts. Republicans vowed that the Democrats' proposals are doa.

The North County Times (of San Diego County) has an excellent editorial on the subject.

[Assembly Speaker Karen] Bass spoke after the Democrats presented their plan to fix the deficit: $8.2 billion in new money, primarily through tax increases. Bass said, in essence, "no more cuts" and fell back onto the controlling Democrats' long-standing line that California does not have a spending problem; "it has a revenue problem." (Republicans are holding firm to a no-tax-increase stance.)

And, in hyperbole at its lowest extreme, Bass asserted there was nothing left to cut except the pay of elementary school teachers, high school principals or firefighters.

Hogwash.

Any private business knows that one does not simply raise prices when facing a new year with projections of less income than anticipated. Instead, a business finds ways to maintain the core of its operations by cutting costs, doing without some things and, if need be, shrinking the work force, either by attrition, buyouts or layoffs.

Is that too much to ask our highly paid, full-time Legislature (now in another weeklong recess) to do, and on time?

Meanwhile, the economic development authorities in Las Vegas, Phoenix, and Denver may have yet another opportunity to snag ex-California businesses in the near future.