Bloomberg News

Brown to Seek More Automatic Spending Cuts If Tax Increase Fails

December 09, 2011

Dec. 8 (Bloomberg) -- California Governor Jerry Brown will propose a second round of automatic spending cuts that would be triggered if voters reject his proposal to temporarily increase income and sales taxes.

Brown said he’ll include projected revenue from the tax increase in the budget he’ll propose next month for the fiscal year that begins July 1, even though voters won’t be able to decide on the higher levies until November. That means if voters say no, it would blow a bigger hole in a budget already facing a $13 billion deficit. Automatic trigger cuts would be needed to eliminate that shortfall, Brown said.

“We’re going balance the budget,” Brown said in an interview in Los Angeles Dec. 6. “We’ll propose cuts and the taxes, and if the taxes don’t materialize, I will propose we have trigger cuts that go into effect immediately.”

California already faces automatic cuts if $4 billion in revenue gains built into this year’s spending plan fails to materialize. Higher education and services for the disabled would be reduced if the state falls short of estimates by $1 billion. The equivalent of seven days would be cut out of the school year if the shortfall is $2 billion or more.

Brown, a 73-year-old Democrat, is pressing for a ballot initiative to increase revenue $7 billion a year by temporarily raising income taxes on those making more than $250,000 a year and boosting the statewide sales tax by a 0.5 percentage point to 7.75 percent.

Tax Collections

California tax collections since the start of the fiscal year have trailed projections by about $1 billion, the state controller’s office said today.

The state Legislative Analyst’s Office projected that revenue for the year will be $3.7 billion behind budget estimates that Brown used to help close what was a $26 billion deficit after Republicans blocked extensions of expiring taxes.

Brown’s finance department, which is developing its own revenue estimate, is expected to announce next week how much cuts will be needed.

“We hacked a $26 billion deficit down to about $10 billion and we’re going to take out the rest of it with more cuts and hopefully some temporary taxes,” Brown said.

The governor proposed raising levies on individuals making $250,000 a year or more to 10.3 percent, from 9.3 percent. For those earning $300,000 to $500,000, it would climb to 10.8 percent from 9.3 percent. For single filers with income above $500,000, the rate would climb to 11.3 percent from 9.3 percent. Californians with income of more than $1 million are now taxed at 10.3 percent.

Brown said Republican lawmakers who opposed tax extensions he sought earlier this year are “losing touch with the majority of the people.”

“They’ve got a lot of Tea Party influence,” Brown said. “Even when we talk to them privately, they’d like to invest in our schools but they’re scared to death of a few of the more extreme elements.”

--Editors: Pete Young, Ted Bunker

To contact the reporter on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net. Christopher Palmeri in Los Angeles at cpalmeri1@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net


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