Anti-Tax Forces in California Finally Do the Math

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Six Holdouts Realize State Budget Shortfall Could Not Be Fixed with Cuts Alone

The governor of California has finally signed a budget. After a prolonged struggle to convince a handful of anti-tax lawmakers that the state's problems were too large to be fixed without additional revenues, a package of spending cuts and tax increases was finally cobbled together. On the tax side, the most notable provisions include a temporary one percent sales tax increase, a temporary hike in state income tax rates, a temporary increase in the vehicle license fee, and a temporary cut in the dependent exemption credit. That's a lot of temporary help for a problem that's not likely to go away.

Negating some of the usefulness of these revenue gains are temporary tax credits for businesses, home buyers, and movie and TV production. Even worse, a permanent tax cut for multi-state corporations was enacted in the form of an optional single sales factor apportionment method. Nonetheless, securing a budget with any additional revenues at all was an important (and difficult) first step.

But the drama in California isn't over. One of the major compromises used to secure the supermajority needed to pass a budget was the inclusion of a provision placing a spending cap on the ballot for a May 19 special election. If voters reject the spending cap, the temporary tax increases will expire in early to mid 2011. If the spending cap is approved, however, the increases will be allowed to continue through early to mid 2013. Needless to say, you can expect plenty more coverage of the California saga as the story develops.

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