The budget clock continues to tick loudly here in Sacramento. The 2010-11 budget is now the fifth-latest budget in recent memory and, if you’re the betting type, could be in the running for first place.
The 2008-09 budget was not adopted until September 21, 2008 – and that budget lasted all of 44 days until the day after the November election, when Governor Schwarzenegger declared a fiscal emergency and called the Legislature back into session.
Is this déjà vu all over again?
On Wednesday, the Senate Revenue and Taxation Committee heard testimony from a number of witnesses regarding the tax package proposed by legislative Democrats. The Legislative Analyst’s Office indicated that their analysis showed that the proposal would result in an increase of tax liability by people who earn between $20,000 and $200,000 per year. However, both Stanford Law Professor Joe Bankman and UCLA Law Professor Kirk Stark lauded the proposed plan. Why the difference? Well, it depends on how you ask the question.
The tax components of the legislative Democrat’s proposal includes raising the state income tax rates by 1% in all tax brackets, except the highest bracket; increasing the vehicle license fee by .5% from its current rate of 1.15%, and reduce the state sales tax rate from its existing level by 2%. Democratic leaders estimate this will raise an additional $1.8 billion in state tax revenues, but the increases to taxpayers will be offset by increased deductions on their federal income tax returns.
Recall, though, that the February 2009 temporary increases in the state sales tax by 1% and in the vehicle license fee by .50% are scheduled to expire next year. The Democrats’ plan does not assume these taxes will expire when they project a net savings to taxpayers from their proposal. The LAO, in their analysis, assumed that the taxes would expire, reducing the tax savings of the exchange and resulting in a net tax increase to those tax brackets. From today’s tax obligation, the Democrat proposal would result in a net tax savings. Based upon current law, though, it would not. It all depends on how you ask the question!
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