Governor Jerry Brown now has more riding on his tax initiative package passing in November then ever. Brown is counting on voters to pass the package to close a rapidly growing deficit, which as of his May revised budget now sits at a whopping $16 billion, far larger than the $9 billion he predicted in January.
Earlier this week, Brown released a plan to close California’s rapidly growing deficit by switching state offices to a four-day week, slashing welfare benefits and healthcare for the poor, along with a variety of short-term fixes — all in the hopes that voters would give the state some breathing room by raising taxes in November.
Critics of the tax initiative, including virtually all Republicans in the legislature, say this amounts to scare tactics to raise more tax revenue, but needlessly pummels education and does nothing to restructure spending and reform entitlements.
Even with the world’s ninth-biggest economy, California has lost more than 1 million jobs since the recession started in 2007, reducing the most populous U.S. state’s revenue by 24 percent. Brown’s plan would “temporarily” raise the statewide sales tax, already the highest in the U.S., to 7.5 percent from 7.25 percent. It would also boost rates on income starting at $250,000. Those in the Kardashian bracket making $1 million or more, now taxed at 10.3 percent, would pay 13.3 percent, the most of any state.
His $91.4 million revised budget does, however, fly in the face of interests that are supporting his tax campaign. Public labor unions are liable to push back at proposed reductions in the state workweek and a related 5% cut in payroll costs. And Democratic legislators have so far refused to accept steep cuts in social services.
Can’t afford to buy-in to Facebook’s Initial Public Offering? No worries, you might soon own a piece of it as a taxpayer. Brown’s plan is also predicated in part on a $1.5-billion boost from Facebook’s Wall Street debut, which the state’s buying into. Also a sharp uptick in new home construction, and (hope you’re sitting down for this one) the sale of $3.5 billion in voter-approved bonds to fund the first segment of a bullet train linking Southern California and the Bay Area are part of the plan. “We’re going to have high-speed rail,” Brown said.
Facebook also came under the microscope this week, the target of a Wall Street Journal editorial suggesting its current advertising model is highly overvalued and overrated. General Motors, for example, questioned the intrinsic value of its placing ads on the social media site, and pulled its advertising. Speculation posits that new shareholders could be in for a dividend disappointment unless Facebook uses its IPO revenue to revamp its advertising approach, add more media outlets and diversify its marketing platforms.
U.S. Congressman Kevin McCarthy (R-22nd District), who represents Kern, San Luis Obispo and Los Angeles counties, told Fox earlier this week he’s concerned about yet another mass business exodus to other states with more favorable tax environs, pointing to thousands of job and small business losses logged between 2008 and 2009.
Mono County Supervisor Hap Hazard said he’s dismayed with the state’s “hold the line, it will all come back” mentality and a lack of political will. He went on to criticize the various unions and special interests that are not willing to allow any changes, and politicians in Sacramento who cave to them.
“Things ARE improving, just not at the level we need,” he said. “Keep in mind that this is politics.”
The Legislature must pass the budget by June 15 so it can go into effect at the start of the new fiscal year on July 1.