Democrats propose $4.9 billion tax package

May 24, 2010

By Daniel Weintraub

Senate Democrats unveiled a $4.9 billion tax increase package Monday, saying that without new revenue California would be forced to make program cuts that they consider unacceptable.

The package would extend the life of temporary tax increases passed last year while delaying the roll out of business tax breaks, most of which were part of the same package.

Gov. Arnold Schwarzenegger, facing an estimated $19 billion shortfall, has proposed eliminating the state’s welfare-to-work program and ending subsidies for child care for children old enough to attend school. Those and other cuts could be shelved if the state raises taxes, the Democrats argued Monday.

The majority Democrats, if they vote as a bloc, would still need the votes of at least two Republicans in the Senate to reach the two-thirds majority required to raise taxes, and so far no Republicans have said they are willing to go there. The governor has also said he opposes raising taxes.

But Democrats say all they are actually proposing is to leave the tax laws as they are today. Extending temporary taxes and delaying the implementation of scheduled tax breaks would raise money for the state without forcing Californians to pay more next year than they are paying this year. A temporary sales tax increase would be allowed to expire while being replaced by an increase in the vehicle license fee.

Here is an outline of the package:

–Extend a 0.25 percent income tax increase by two years, raising $1 billion in the next fiscal year and $2.9 billion the following year.

–Extend the reduced dependent care credit for another two years. Last year the credit was reduced from $309 to $99. This would $430 million in the next fiscal year and $1.3 billion the following year.

–Extend the increase in the vehicle license fee for two more years, and raise it again, bringing the total to 1.45 percent of a vehicle’s value, generating an extra $1.2 billion in the next fiscal year and $2.9 billion per year after that.

–Raise the alcohol tax to reflect inflation since 1991, raising in an additional $210 million annually.

–Extend suspension of a business’s ability to reduce its taxable income by applying losses from prior years while also eliminating the ability of companies to go back and amend returns and carry losses back to those years to reduce their tax liability. The two changes would generate aabout $1.5 billion next year.

–Make “single sales factor” mandatory, eliminating the ability of companies to choose the tax policy that they like best. This change would raise $235 million next year.

–Delay by two years the ability of corporations to share tax credits with affiliated members, generating $315 million next year.

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