Plan to Raise Taxes on Rich Dies in Senate

A plan by Senate Democrats to raise taxes on wealthy Californians to help close a $23.6-billion budget gap failed in the Senate Tuesday, amid Republican opposition.

The $4.8-billion plan centered on a proposal by Senate Leader John Burton (D-San Francisco) to raise $2.7 billion by increasing the highest individual tax brackets from the current 9.3% by adding 10% and 11% brackets. The measure failed to get the single Republican vote needed to gain the required two-thirds approval in the Senate and to send it on to the Assembly for consideration.

When combined with revenues from a variety of other tax proposals, the money would have funded an expansion of a health insurance program to cover poor parents, bolstered fire protection, continued a popular tax break enjoyed by motorists and paid for a juvenile crime prevention program, among other proposals.

Democratic leaders acknowledged that the plan would not solve California’s fiscal problems, but warned that the reduction in state services that would be needed without an increase in taxes would be too large.

“When I look at what is not going to get funded ... I’ll pay my 300 bucks,” said the Senate Budget Committee chairman, Steve Peace (D-El Cajon).

For single filers, the 10% rate would have kicked in on incomes of more than $130,000. The 11% rate would have applied to income of more than $260,000. For joint filers, the 10% rate would have taken effect at more than $260,000 and 11% at more than $520,000.

A married filer with taxable income of $400,000 could have expected to pay $980 in increased taxes from the 10% rate. Because state taxes can be deducted on federal tax returns, the net increase would be $601, Democrats said.

“This is not really going to send anyone to the poorhouse,” Burton said. He proceeded to tick off a list of programs dear to Republicans that would be funded if the tax hike were approved, including money to help small-county sheriffs and a program favored by environmentalists and farmers that rewards landowners for keeping parcels undeveloped.

Republicans, however, objected to the tax hikes and called for more spending cuts to balance the budget. Sen. Tom McClintock (R-Thousand Oaks) said his Democratic counterparts appeared to be missing the larger picture.

“This budget crisis is not the fault of the taxpayers for not paying enough taxes,” McClintock said. McClintock took issue with what he described as the state’s spending the largest portion of people’s earnings and delivering less with it.

“Their only solution is to raise taxes,” McClintock said of Democrats.

The Senate Republican leader, Jim Brulte of Rancho Cucamonga, blamed a rise in state spending under Gov. Gray Davis for California’s budget problems.

“The governor has taken us from the largest surplus in California history to the largest deficit in California history,” Brulte said.

But Peace, the budget committee chairman, said that the growth in state spending has been focused on programs supported by Republicans and Democrats.

Peace said that the spending increase separating the two parties comes down to, at most, $2.5 billion for health-care programs.

Jean Ross, executive director of the California Budget Project, a group that lobbies for the poor during budget negotiations, had previously said that the top 1% of California taxpayers would still have come out ahead under Burton’s plan when federal tax breaks were taken into account.

Such households, according to Ross, would have received an average federal tax cut of $51,717 when it was fully phased in, compared with a state tax increase of $7,674 under the Burton proposal.

Davis opposes Burton’s plan. The governor instead favors a proposal to essentially double vehicle license fees paid by motorists, which would raise $1.3 billion in the fiscal year beginning July 1 and a similar amount in the following year. Davis noted when he released his revised budget last month that the top 5% of taxpayers already generate 70% of revenues from stock options and capital gains.

The Senate’s tax plan also called for a suspension of a tax deduction enjoyed by businesses, a 50-cent increase in taxes on cigarettes and suspension of tax credits for teachers and owners of solar energy systems. The plan would restore $3.7 billion earmarked for local governments to replace money they would lose as a result of the state’s reduction in vehicle license fees.

In the Assembly, lawmakers expect to take up a similar budget package on Thursday, even as a standoff continues between lower-house Republicans and Democrats over a plan by Davis to shift about $1.7 billion in school funding to help balance the budget. The measure would need four Republican votes to achieve the required two-thirds majority, and GOP members have refused to vote for it after Democrats rejected a request to earmark about $1 billion for school-related programs.

Davis and lawmakers are facing a Sunday deadline if they are to have a new spending plan in place for the start of the new fiscal year.