Californian GOP Kills Democrat Budget Plan

by Mike Godfrey, Tax-News.com, Washington

19 August 2008

Republican lawmakers in the Californian state Assembly have voted down a plan proposed by Democrats that would raise taxes on corporate and individual income to help close the state's USD15.2bn budget shortfall.

The Democrats' budget plan had called for an increase in the state's corporate income tax to 9.3% from the current 8.8%, and a hike in personal income tax to 10% for families earning more than USD321,000 and 11% for those earning more than USD642,000. In addition, several tax breaks allowing companies to deduct certain expenditures for tax purposes would have been suspended.

The plan also detailed cuts in spending, but this was not enough to gain the support of Republicans, and it failed to attract enough votes for the two-thirds majority needed to pass, falling short by nine votes.

The Assembly's latest failure to agree a deficit closure plan means that the state has now gone eight weeks without a budget, and there are few signs at the moment that the impasse is about to end.

For his part, Governor Arnold Schwarzenegger, who has previously fought tooth and nail to prevent taxpayers from paying for the state's budget mismanagement through higher taxes, has suggested a temporary one percentage point increase in the rate of the state sales tax, although this is unlikely to gain enough support in the Assembly to pass.

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