Brown pushes tax hike as California's money woes deepen

[WestVirginiaRebel]

Yahoo News:

SAN FRANCISCO (Reuters) - California Governor Jerry Brown was elected in 2010 on a promise to fix the state's chronic fiscal crisis. His weekend announcement of a much bigger-than-expected shortfall in the state budget signals how far he still has to go.

In an unusual move that underscored the highly politicized nature of the state budget, Brown took to YouTube on Saturday to deliver the bad news: the state's projected budget deficit for the fiscal year starting July 1 is now $16 billion, up from the $9 billion anticipated in January.

The Democratic governor also warned of further cuts to an already-battered public education system if voters rejected a tax increase in a ballot initiative this fall.

On Monday, Brown will hold a news conference to detail the new budget deficit and how he intends to close it.

California, whose economy is the largest in the nation and would rank ninth in the world if the state were a country, has struggled for decades with a tax system in which property tax increases are limited by law and tax hikes of any kind must be approved by voter initiatives or a two-thirds vote of the legislature.

High income and sales taxes produce plenty of revenue in good times but fall sharply in a recession, while spending on schools, prisons and medical care for the poor and elderly is hard to adjust.

The deeper deficit forecast reflects the state's uneven economic recovery: tax collections this year have fallen about $4 billion below projections, though many state legislators and economists had warned that the January revenue estimates were far too optimistic.

The deficit also grew because some previously agreed cuts to state social programs, including the Medi-Cal healthcare program for low-income families and seniors, were either delayed by legislators or blocked by the courts and federal officials.

Brown's video had the air of a campaign call for a tax hike initiative that is the centerpiece of his fiscal plan.

"What I'm proposing is not a panacea. But it goes a long way toward cleaning up the state's budget mess," he said. He acknowledged that further budget cuts would be needed as well, but added: "we can't fill a hole of this magnitude with cuts alone without doing severe damage to our schools."

The measure would temporarily raise California's sales tax to 7.5 percent from 7.25 percent and increase personal income tax rates on a sliding scale starting at annual income of $250,000. Incomes of $1 million and above would see a 3 percentage-point bump, pushing the top rate to 13.3 percent. The measure would raise $9 billion for the next fiscal year.

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The land of quick fixes.