Jerry Brown changes his tax plan to address concerns of liberal allies

Published: Thursday, Mar. 15, 2012 - 12:00 am | Page 1A
Last Modified: Tuesday, Feb. 26, 2013 - 8:16 pm

After a months-long feud with his most liberal allies, Gov. Jerry Brown compromised Wednesday to eliminate a rival tax initiative for the November ballot.

The new proposal Brown forged with the California Federation of Teachers and left-leaning activists would rely more on taxing the rich to raise an estimated $9 billion for California's budget.

The Democratic governor tried with little success to knock CFT's rival tax on millionaires off the November ballot. With a negotiating window closing fast because of the election calendar, state leaders and the teachers group struck an eleventh-hour deal to put their unified plan before voters.

"We were headed for a real collision course," said Senate President Pro Tem Darrell Steinberg, D-Sacramento. "If this were a game, this would all be pretty interesting, the machinations. But this is not a game."

The new initiative involves a smaller sales tax hike and larger tax increase on the wealthy than Brown wanted. CFT had been circulating a popular initiative with no sales tax hike and a two-step increase on earners starting at $1 million per household.

Brown's Department of Finance estimates the new plan would raise $2 billion more through June 2013 than the governor's original initiative, though Finance takes a rosier view of state revenue than the nonpartisan Legislative Analyst's Office.

The governor filed the new constitutional amendment Wednesday around the same time he announced his agreement, reflecting his lack of time to waste. At best, he will have his measure cleared for circulation in early April, leaving only a few weeks to gather 807,615 valid signatures.

CFT President Joshua Pechthalt said the drive could cost upward of $6 million. He would not disclose how much his group would commit.

The governor had serious concerns that multiple tax measures on the November ballot would doom all to failure. Brown must still contend with an initiative filed by wealthy attorney Molly Munger to raise income tax rates on all but the poorest taxpayers. But the governor sees that proposal as less of a problem because it has sunk below 50 percent in recent polls.

In a statement Wednesday, Brown said the deal with CFT "makes victory more likely."

The new plan would raise the statewide sales tax by a quarter-cent rather than a half-cent per every dollar. It retains Brown's three-tier income-tax hike starting at $250,000 for singles and $500,000 for couples. But the last two brackets increase by greater amounts than Brown originally proposed, with the highest rate rising to 12.3 percent starting at $500,000 of income for single filers.

CFT officials claimed victory Wednesday, saying they accomplished their goal of putting a progressive tax measure on the November ballot. The union's initiative had been polling best of the three multibillion-dollar tax hikes circulating in part because it only contained a tax on millionaires.

"While I think politically using the word 'millionaire' was helpful, really our political motivation was to look at the top 1 percent of income earners, and I actually think this measure is more true to that," Pechthalt said.

While CFT seemed determined to qualify its measure, questions lingered about whether the union had enough money to wage an effective campaign this fall.

Brown's own advisers warned that CFT's plan would face a backlash from business groups and wealthy taxpayers who could easily finance an opposition effort. In the past week, the governor scored a victory when the California Chamber of Commerce and California Business Roundtable announced their opposition to the CFT and Munger proposals and remained silent on Brown's initiative.

With Brown moving closer to CFT's plan, however, several political analysts wondered Wednesday whether the governor may face the very opposition he once suggested would knock out the "millionaires tax."

One aspect of the compromise stretches the higher tax on wealthy earners to seven years instead of five. Business groups said they opposed the other plans because they remained in effect either permanently or for a long duration.

"Just when he was striking a balanced approach and making inroads with the business community, he buckles to union pressure," said GOP strategist Rob Stutzman. "I don't know what the business community will do, but I think privately there's a lot of disappointment."

Rob Lapsley, president of the California Business Roundtable, called the compromise "a whole new wrinkle" but said his group would have to discuss the new version before taking a position.

The compromise didn't leave CFT's grass-roots coalition satisfied. Student activists were drawn to the CFT plan because it redirected money from the rich to the state's three higher education systems. Thousands of students rallied last week at the Capitol to protest tuition hikes and massive state budget cuts, many of them holding signs in support of CFT's initiative.

The new proposal instead raises funds for the state budget. Some of the funds could help higher education, but Brown and legislators must first patch a $9.2 billion deficit. The compromise plan contains no earmarks for the University of California or California State University systems.

"We need a guarantee that some of this new revenue is going to go toward reversing tuition hikes," said Charlie Eaton, a UC Berkeley graduate student and campus labor activist. "We don't have that yet, but students intend to get it."

© Copyright The Sacramento Bee. All rights reserved.

Read more articles by Kevin Yamamura

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