The California Budget is Up for Grabs

[courtesy of California Progress Report]

By Robert Cruickshank

That's the impression I am getting after surveying the political and media landscape over the last few days. With the May Revise now two weeks away, the outcome of a long and contentious summer budget process is less clear than ever.

There is a growing recognition among Californians that new revenues are going to be needed to close the deficit if we are to continue having public schools. Health care, transportation, and other government services are all going to be impacted by this budget, of course, but it is education that has become the most high profile part of the budget. If Californians can be convinced to restore the relationship between taxes and services, as David Dayen framed it yesterday, it is going to happen because they will refuse to destroy our schools.

Whether Californians will be convinced - and what the details of a tax proposal will be - are at the core of what is "up for grabs" with the budget.

Friday’s LA Times reports that Arnold has now embraced new taxes, sending his staff to negotiate not with Democrats but with business groups on what form this will take:

“As Gov. Arnold Schwarzenegger continues to say publicly that he will hold the line against new taxes, his administration is laying the groundwork for a possible tax increase.

“Administration officials are soliciting advice from business groups and other special interests on how to propose billions of dollars in tax hikes that could help close a budget shortfall the governor now says is as large as $20 billion.

“Schwarzenegger's staff is exploring a range of options, including sales taxes on lawyer and accountant services, on high-end services such as golf lessons and personal-trainer sessions, and on takeout coffee and other prepared foods that are not taxed now.

“The administration's goal, participants in the discussions say, is to gather support for new taxes from a broad spectrum of the business lobby, giving the Legislature's Republicans political cover to break their pledges never to vote for them.”

More below, including how Hillary Clinton may be undermining a progressive revenue solution...
Arnold's proposed new revenues are very much like those that Pete Wilson used to close the budget deficit he faced in 1991-92, when newspaper and snack taxes were used to raise the needed revenues.

The problem with this approach is that it is still nibbling around the edges of our structural revenue shortfall. Estimates are that the modernized sales and professional services taxes might raise as much as $9 billion, a figure that seems a bit high. And of course, even that would leave as much as $11 billion in deficit still to close.