Sacramento Democrats have unveiled their core tax proposals, and they involve raising $9.7 billion in taxes from the wealthy and from corporations, according to the LA Times:
Most of the new revenue would come from an income tax hike.
A dependent-care credit currently available to all Californians also would be eliminated for families with an income of more than $150,000….
Income taxes on families earning more than $321,000 would go up by 7.5%. Joint filers earning more than $642,000 would see an 18% hike.
The proposal also includes an amnesty intended to entice tax cheats to pay up, the suspension of various tax breaks for corporations and the restoration of a franchise tax on businesses.
These are good moves to deal with the structural revenue shortfall, especially the closure of tax giveaways that the wealthy do not deserve and do not need. Progressive taxation is exactly what Democrats must stand for and so this is a welcome proposal.
Of course the Yacht Party plans to fight this to death:
Assembly Budget Committee Vice Chairman Roger Niello (R-Fair Oaks) said Republicans are “categorically opposed” to the broad-based tax hikes and predicted they would be defeated in floor votes….
Schwarzenegger spokesman Aaron McLear said that although the governor is opposed to tax increases, he is pleased to see the budget process moving forward.
But this is very smart politics from Democrats. It matches the proposals of Barack Obama and Congressional Democrats, who both plan to raise taxes on the wealthy to pay for new spending and budget balancing, presenting a united front. It puts the Republicans back on their heels here in CA, especially in advance of the fall elections, where Democrats ought to beat Republicans over the head on the budget. “Republicans want to close schools to give the wealthy a tax break” – that is excellent framing given the public mood.
There are signs that Dems are beginning to be smarter about how they defend these proposals:
Democrats defended the tax increases as consistent with action the state has taken in the past.
They noted that raising the tax paid by high earners from the current top rate of 9.3% of income to as much as 11% is exactly what the state did during the budget crisis of the mid-1990s, when Pete Wilson was governor.
“These are really just rolling back tax cuts that have been made,” said Senate Budget Committee Chairwoman Denise Moreno Ducheny (D-San Diego).
Both points are right on. The tax solutions of the early 1990s not only helped close the budget deficit but helped California become poised for the broad economic growth we experienced in the 1990s. Contrary to Republican claims those taxes didn’t induce a flight of the wealthy or of jobs.
Ducheny is also smart to point out that these were tax giveaways – many of them made during the dot com boom when Republicans recklessly demanded wasteful spending, in the form of tax cuts, during a temporary spike in tax receipts.
It’s not clear where this plan is headed. Personally I think it took Dems a little too long to come out with these proposals, and I always worry that they’ll quickly abandon them in order to cut a bad deal with Republicans.
Democrats need to understand they are in the driver’s seat on the budget this year – the 2/3 rule certainly makes things extremely difficult, but on the politics alone, Democrats should have the edge. If they aggressively pursue this tax plan in public, as part of a broad strategy to undermine Republicans, they should reap the rewards.