Calif. Dems Want GOP's Help To Raise Taxes

By Chris Rizo | July 7, 2008 | 8:29 PM EDT

Sacramento ( - California Republicans are facing mounting pressure to join Democrats who want to raise taxes to cure a staggering $34.8 billion revenue shortfall.

Democrat Gov. Gray Davis last week announced an updated deficit estimate, which dwarfs the $21 billion estimate released in November by the non-partisan legislative analyst's office.

"This budget shortfall is larger than any expert predicted," Davis said, explaining the downgrade is due to an unrealized upturn in the state and national economies that forecasters had anticipated.

Democrats, who control both houses of the Legislature, claim California is in a full-blown crisis, with the budget shortfall representing 45 percent of the current-year general fund. They believe there is no other choice but to raise additional revenues, an issue with which they remain at loggerheads with Republicans.

"The governor saying that 'everyone needs to be part of the solution' is just budget-speak for 'everyone needs to vote for tax increases,' " said GOP Assemblyman Rick Keene.

Keene and other Republicans have called on Democrats to reject all legislation this year that would cost the state money. Republicans have also suggested a constitutional amendment to limit growth in spending.

Instead, Democrats, hoping to stave off deeper cuts to state programs, have introduced such tax proposals as a nickel-a-drink fee on alcoholic beverages, increasing vehicle registration fees, charging sales tax on services and raising the income taxes on the
wealthiest Californians.

Assembly Speaker Herb J. Wesson Jr. and Senate President Pro Tempore John L. Burton, both Democrats, have both said it is mathematically impossible to overcome the state's budget crisis through cuts alone.

When it comes to approving tax increases, Democrats, however, are tethered by a provision in the state constitution that requires consent of two-thirds of lawmakers. That means the Democratic leadership must somehow cajole six of the 32 Republicans in the 80-member House and two GOP votes from the 15 Republicans in the 40-member Senate.

"We've been telling the governor and the Democrats in the Legislature for two years that the state has a serious problem," said Republican Sen. Bob Margett. "And they haven't listened," he said.

California is not alone in having a budget predicament. The federal government and 46 other states are experiencing similar problems, mostly blamed on a lingering national recession and lackluster financial marketplace.

But because California relies heavily on non-wage income from the wealthiest Californians in the form of capital gains taxes, the foundering national economy and decline of investor confidence has made a bad situation worse for the Golden State, said Democrat Assemblyman Ed Chavez.

"Definitely California's tax structure needs to be examined and potentially reformed," said Chavez, chairman of the Assembly Committee on Revenue and Taxation. "We are more dependent than other states on the personal income tax."

Rather than seek tax increases to bridge the budget gap, Margett said the Legislature ought to consider making California more business-friendly, which would allow industry to thrive. The state would also benefit from an increased number of taxpayers, he said.

"This state has got to stop being so anti-business," he said, explaining that businesses in California are plagued by higher insurance and tax rates than in neighboring states.

Republican Assemblyman Bob Pacheco said if the governor's advisers are correct, California is headed straight for bankruptcy.

"It just goes to show you how important it is for us to address the core of this problem: Our revenues do not match our spending," Pacheco said.

Despite the dire predictions, he said, Democrats will likely continue to oppose program cuts that are necessary for the state to regain its financial footing.

"It's almost as if they are saying it's really not happening," Pacheco said of the Democrats. "But it is and they need to wake up and make the cuts or we're never going to have a balanced budget in this state."

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