Balancing The State Budget: New Taxes Needed?

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(Sacramento, CA)
Monday, March 3, 2008
The state’s deficit had ballooned to 16 billion dollars. But the non-partisan legislative analyst Elizabeth Hill says recent mid-year cuts reduced that by half. Now lawmakers are turning to the tougher job of eliminating the remaining eight billion. Democratic Assembly Speaker Fabian Nunez has said a balanced approach – half cuts – and half new revenue – is the way to go: “It will not be done with spending reductions along – and some folks have said, is that drawing the line in the sand and I hope it’s not perceived as drawing a line in the sand, but it’s a very firm statement.” Nunez isn’t calling for a general tax increase. He wants to close so-called tax loopholes. That’s something Legislative Analyst Hill has also recommended. She’s even proposed reducing or eliminating the write-off parents get for having children. Governor Schwarzenegger has been a staunch opponent of tax increases, but at a recent event he said the state should consider Hill’s proposal: “We should look at those seriously, she has identified 2.5 billion dollars in loopholes. The yacht tax is one of them. I think we should go after those tax loopholes.” The Governor later said he didn’t necessarily support the analyst’s recommendations. But he does support eliminating the break that allows yacht owners to park their boats offshore for 90 days to avoid paying tax on it. Assembly Republicans have twice rejected that idea. G-O-P lawmakers say closing a loophole could hurt the economy because it might change people’s buying habits. And Republican votes matter – they’re needed to support any tax increase. “In the end, at least some of the final solution to the budget at least the negotiation in the end is going to involve revenues in some way." Jack Pitney is a Professor of Government at Clermont-McKenna College: "They might call it something else. They might call it loophole closing or user fees, or a banana but in the end the State is going to have to have more revenues.” Lawmakers are supposed to have a spending plan in place by July first – but the Governor has asked them to finish that any cuts can take effect sooner. Pitney says that would be quite an achievement...but he wouldn’t bet on it happening.