Thursday, July 10, 2008

Democrats propose $10 billion tax hike on wealthy

SACRAMENTO — The proposed $10 billion tax increase on the wealthy that Democrats unveiled Wednesday has been criticized by Republicans as standard tax-and-spend dogma out of their old political playbook. But experts say it has the full force of public opinion, which has been increasingly in favor of asking the rich to pay more as resources become scarcer and the disparity grows between the haves and the have-nots.

"Many voters believe that higher income earners have gotten breaks at the federal level and can afford to pay more," said Mark Baldasarre, director of the Public Policy Institute of California. "So, you see Democrats at the state level and national level more willing to say the wealthy need to pay higher taxes."

It is a concept that Senate President Pro Tem Don Perata, D-Oakland, and Assembly Speaker Karen Bass, D-Los Angeles, appeared eager to seize at a Capitol news conference. Voters, they said, don't want to see their parks or health care clinics closed, schools to be decimated or the safety net cut out from under the poor — and they are convinced that the wealthy can help prevent any further cuts from the state budget.

"People are unhappy with the cuts proposed, so that doesn't leave many options," said Melissa Michelson, political science professor at Cal State East Bay. "So, raising taxes has become more acceptable. "

Garry South, a Democratic consultant and former aide to ex-Gov. Gray Davis, was skeptical Advertisementthat tax increases have much support.

"The Democratic nominee in 2006, Phil Angelides, proposed a multibillion-dollar tax increase and he got demolished," South said. "There were five tax increase proposals on the ballot in 2006 ... and they all went down. People are simply not in the mood to vote for millions of dollars of taxes on themselves."

It's actually only a handful of Republicans that Democrats have to persuade to join them — two in the Senate and six in the Assembly — to muster two-thirds of the votes in both chambers to win approval of tax increases. But few expect that to happen with their proposal intact.

The state is facing an estimated $15.2 billion deficit, after legislators cut $7 billion in spending earlier this year, and Democrats insist the budget cannot be balanced through cuts alone.

"We're asking those who've benefitted the most to pay the most," Perata said. "These are the same people who worship at the altar of higher education, who want an unfettered market and who want to move goods from concept to market. We're only asking them to pay a little bit more."

Republicans called it typical tax-and-spend policies of Democrats, and reiterated their long-standing refusal to consider tax increases.

"It's the same old solutions of the past," said Assemblyman Roger Niello, R-Sacramento, the ranking Republican on the Budget committee. "To finance a continued increase in spending with massive tax increases on a weak economy is a dysfunctional solution to this year's crisis."

The most revenue under the plan — $5.6 billion — would come from a boost in the income tax rate for those families making $321,000 or more. The tax rate would jump from 9 percent to 10 percent for those filing joint returns of $321,000 or more, and to 11 percent for those with incomes of more than $642,000.

The plan closes a corporate tax loophole for large corporations, generating $1.1 billion, and it also rolls back a dependent tax credit for families making $150,000 or more, worth $215 million in revenue. For an additional $470 million in revenue, the plan restores the franchise tax, on corporations bumping it from 8.8 percent to the pre-1997 level of 9.3 percent.

"If the blind, disabled and elderly don't get a cost of living increase, then we should forgo indexing for next year, which is our COLA," Perata said. "They don't get it, and we shouldn't either. We're sacrificing in this together."

Perata was referring to a provision that suspends the indexing, or adjustments of tax tables next year, which would generate $815 million.

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