California Democrats Lay Out Plan To Close Budget Gap With Tax Hikes

SAN FRANCISCO - Democratic lawmakers in California have rolled out specific tax increase proposals they say would close the state's budget deficit.

Their proposal would include $9.7 billion in new revenue, most of it from increasing marginal income tax rates.

"We're asking those who have benefited the most to pay the most," Senate president pro tempore Don Perata, D-Oakland, said at a news conference yesterday.

The plan does not include Republican Gov. Arnold Schwarzenegger'sproposal to raise revenues in the current fiscal year by issuing bonds to securitize revenue from the state lottery.

"The strength of our proposal is we are not including any borrowing," Assembly Speaker Karen Bass, D-Los Angeles, said at the news conference.

Bass and Perata called the news conference after their budget proposal was firmed up late Tuesday in the final meeting of the budget conference committee.

The budget conference committee approved the plan on a party-line vote, with Republicans voting "no." A final budget won't be so simple, because minority Republican votes are needed in each house to obtain the required two-thirds majority.

GOP lawmakers have said they will stand firm against tax hikes.

"As the conference committee concluded tonight, I have to say that I am disappointed," said Sen. Bob Dutton, ranking Republican on the Senate Budget Committee. "With the California economy struggling, now is not the time to raise taxes."

The Democrats said their proposal is a comprehensive budget that serves as a solid base of negotiations with Republicans.

"We're going to work as hard as we can for the next seven to 10 days to arrive at a budget that Republicans can vote for," Perata said. He said he's treating Aug. 1 as a de facto deadline because of the state's looming cash crunch.

Officials from the State Treasurer's Office and State Controller's Office have said that pushing the budget much beyond the beginning of August will put the state in a position of paying a much higher price for the $10 billion cash-flow borrowing the state needs, because investors would demand more compensation for a higher level of uncertainty.

Schwarzenegger, asked about the Democrats' budget plan at another Sacramento press conference, avoided pinning himself down.

"I have always been against tax increases but I want to keep everything on the table," he said. "I'm open minded but I'm against tax increases."

The Democrats' proposed tax increases include: higher income tax brackets, effectively raising the highest marginal rate to 12% from 10.3% on incomes above $1 million, adding 11% and 10% brackets for other taxpayers, who currently face a top bracket of 9.3%.

That would generate $5.6 billion, they said. The proposal would also suspend the indexing of tax brackets. Other proposals include an increase in corporation franchise taxes, and restricting corporations from carrying forward losses between tax years. The plan also projects $1.5 billion through "stepped up tax enforcement."

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