To call the Democrats' latest tax package complex would be an understatement.
California law requires a two-thirds vote to increase taxes -- meaning Republican support is necessary. But Democrats are making an end-run around the GOP with this latest package, which the Legislature will vote on later today, in a number of ways.
Here's the bottom line:
- The state sales tax will rise three-quarters of a percent. Total in new taxes: $4.9 billion through the 2009-10 fiscal year.
- All residents will pay an additional 2.5 percent on their income tax bills. So if you owed the state $1,000, you would now owe $25 more. Total in new taxes: $1.75 billion through the 2009-10 fiscal year.
- California would implement an oil severance tax -- levied at 9.9 percent -- on all oil extracted from the ground in the state. Total in new taxes: $845 million through the 2009-10 fiscal year.
- The current gas sales and excise taxes would be eliminated and replaced with higher gas "fees." The new gas fee would be 13.5 cents per gallon higher than users at the pump currently pay. The new funds would be earmarked for transportation spending
How it works:
The first part of the plan is a quarter-cent sales tax hike that will bring in the state an estimated $1.6 billion in the next fiscal year.
At first blush, that would seem to require a two-thirds vote. But Democrats insist that technically they won't be voting to raise the tax.
Instead, they will be voting simply to stop paying that amount to local governments. With that money not flowing, local sales taxes have a trigger to automatically rise ΒΌ of a percent.
So the move is a de facto tax hike and the state saves money by not paying local governments.
The second part of the equation is just as complex.
In a single bill, Democrats will eliminate the sales and excise taxes on gasoline and replace those taxes with higher income taxes, sales tax and an oil severance tax.
The total revenues collected will turn out the same in that bill.
But the Democrats will then vote on a different piece of legislation to replace the old gas sales and excise taxes (which only went to transportation needs) with a gasoline "fee," to be set at 39 cents per gallon.
Because they are raising a "fee" and not a "tax," Democrats believe (and they say their lawyers have approved) they can do this with a majority vote.
In addition to all that, Democrats also plan to implement a new 3 percent income tax withholding on businesses that do independent contracting. This is not a new tax; the state is simply collecting the money earlier. It will result in $2 billion additional money in 2009-10 but will not be a long-term source of revenue.
All told, Democrats say the package will raise $9.3 billion in revenues.
The Democratic leaders said the package will contain the same cuts the Legislature rejected on Nov. 25.
We detailed those cuts in a post at the time. Here they are reprised:
Cuts
K-12 Education: roughly $4 billion, including the current year and 2009-10The state's biggest expenditure would take the biggest hit in the budget outlined by Assembly Democrats.
Community colleges: $200 million over two years
University of California and California State University: $264 million over two years
Personnel:: $657 million over two years
How this cut would be distributed - layoffs, furloughs, salary freezes - would be determined by various agencies and bargaining units. Cuts of $240 million in the current year and $417 million in 2009-10.
SSI/SSP grants: $600 million over two years.
Would take back scheduled federal increases for cost-of-living for low-income aged, blind and disabled scheduled for 2009.
CalWORKS:: $100 million from cost of living suspension.
Cost-of-living adjustment (COLA) would be suspended for the state's welfare program.
Regional centers $112 million over two years from cuts to regional centers.There would also be a 3 percent cut to regional centers across the state, saving $40 million in the current year and $72 million in 2009-10.
Transit $312 million over two years.
Cuts of $156 million in each of the next two years.
Judiciary: $35 million in cuts
Local public safety programs $250 million in the current year and $500 million in 2009-10
The cuts come by eliminating funding for local law enforcement programs, though some of the funding (roughly $500 million over the two years) would be restored through a new $12 fee on car registration.
Williamson Act $35 million cut
Would eliminate state funds that currently go to counties for this program to preserve agricultural lands.
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