Senate leader proposed increasing tax on richest Californians

By Don Thompson The Associated Press
Friday January 04, 2002

SACRAMENTO — The state should temporarily increase personal income taxes on the richest Californians to help offset an expected $12 billion budget shortfall, Senate President John Burton said Thursday. 

By reverting two top income brackets to the levels they were in the mid-1980s, California could raise an additional $2 billion to $3 billion a year, Burton said. The increase would halt once the state built a reserve of 3 percent, he said. 

Taxpayers affected by his proposal will get a federal tax break from the Bush administration, Burton said, so “it really isn’t going to be that much of a hardship on anybody.” 

Californians in the highest income bracket pay 9.3 percent in state taxes. That includes single, heads of households making more than $45,888 and married couples earning more than $67,346. 

Under Burton’s plan, the state would restore two additional brackets — single filers making between $130,000 to $260,000, and married couples earning between $260,000 and $520,000 — which would pay 10 percent. The tax rates increase to 11 percent for a single filer earning more than $260,000 or a couple making more than $520,000. 

“You’re talking about people who got a pretty nice savings out of the Bush administration,” Burton said. “If you’re making $200,000 taxable, which means you’re at $300,000 gross, and you have to come up with less than $500, I don’t think that’s necessarily going to cut into someone’s standard of living.” 

A top Republican budget negotiator quickly labeled Burton’s proposal as a “soak-the-rich idea.” 

“I expected this,” said Assemblyman John Campbell, R-Irvine. “This is just their typical usual response when they spend too much, to try and figure out a way to create class warfare to hide a further dampening of economic activity.” 

Also Thursday, California Treasurer Phil Angelides proposed that the state could save more than $2 billion over the next 2 1/2 years by restructuring its debt. 

Angelides said his plan can help the state with the budget deficit caused by both a sharp economic downturn and a dispute over the state’s ability to recoup money it has spent to buy electricity on behalf of three cash-starved utilities. 

The proposals come a week before Gov. Gray Davis releases his budget proposal. 

“The governor’s been focusing on spending cuts, not raising taxes,” said Davis’ spokesman Steve Maviglio. 

Burton, however, said the solution would have to be half spending cuts and half new taxes. 

“There’s just no way, in my judgment and the judgment of most intelligent people that you can cut your way through such a tremendous deficit,” Burton said. “There’d be no state employees, no highway patrol.” 

The Legislature returns Monday for the final year of its two-year session and a special legislative session devoted to the state’s economy and the budget shortfall. 

“I am very determined that the entire burden of this deficit’s not going to fall on the elderly, blind and disabled. It’s not going to fall on the poor children. It’s not going to fall on the developmentally disabled,” Burton said. 

Larry McCarthy, president of the California Taxpayers Association, said his organization “strenuously disagreed” with Burton’s proposal, adding that the tax brackets were eliminated in the 1980s when the overall tax base was increased. 

His group will oppose any tax increase, McCarthy said, because “to raise rates back up is to ignore history and ignore reality.” 

Officials should know within days whether negotiations between Davis’ administration and the Public Utilities Commission will let the state issue long-term bonds to offset the energy costs, Angelides said. Regardless, he said, it likely is too late to issue those bonds before the next fiscal year begins in July. 

The restructuring pushes principle payments on the state’s general obligation bonds to the end of the decade, but would bring slightly lower overall costs, Angelides said. It must be approved by several committees and commercial bond houses. 

The plan would save a projected $223 million during the last six months of this fiscal year, $923 million in the fiscal year that starts July 1, and $963 million the following year. 

Bond houses and budget negotiators said the plan is merely a piece of the state’s overall response. 

“This is not a panacea ... for the budget,” Angelides agreed. 

However, he said the one-time debt restructuring is suitable to help the state deal with a one-time revenue crunch. In addition, the state should take advantage of the most favorable interest rates in 30 years, Angelides said: “Now is really the time to restructure this debt.” 


The California Franchise Tax Board: http://www.ftb.ca.gov