While most of California and the nation was transfixed this week on whether the $789 billion federal stimulus package was going to be approved in Washington, another drama -- no less important to Californians -- was playing out in Sacramento.
On Wednesday, despite steep odds, Gov. Arnold Schwarzenegger and state Assembly and Senate leaders announced that a fragile $40 billion accord to close the state's deficit through June 2010 had been reached. For this plan to succeed, Republicans are going to have to agree to vote for tax hikes and Democrats are going to have to agree to vote for deep spending cuts. Moreover, both sides are going to have to agree to let the voters have the final say whether to establish state spending limits during any flush future boom years. Back in Washington, House and Senate negotiators announced they had reached an agreement on President Obama's $789 federal economic stimulus bill. The president is expected to sign the legislation on Monday.
Just like the state budget agreement, the federal stimulus bill is not a well-like piece of legislation. Republicans say it doesn't do near enough to cut taxes and create job growth. Democrats argue it doesn't spend enough on infrastructure and vital health and welfare programs.
One part of the package that teetered precariously near the edge of the negotiating table this week was a $70 billion fiscal "patch" for the dreaded Alternative Minimum Tax. The $70 billion will staunch any loss to the federal treasury while exempting nearly 23 million taxpaying middle class families from being on the AMT hook.
A part of the Tax Reform Act of 1969, the AMT was originally targeted at -- believe it or not -- just 155 high-income households. These rich families, using a variety of deductions, credits and loopholes, were paying little to no federal income tax. This naturally didn't sit well with Congress so the AMT was created to make sure they paid their fair share. But because Congress never assigned it an annual cost of living increase nor any device to adjust for inflation more and more middle class Americans were being subject to the AMT as their incomes grew over the years. At the end of the day, however, the conferees saw the wisdom of keeping the so-called AMT "patch" in the stimulus bill -- a decision that in and of itself stimulated a great sigh of relief across middle class America.
Meanwhile, the drama in Sacramento isn't quite over. In fact, the curtain on the third act is just rising.
The Assembly is scheduled to convene this Saturday to vote on the embattled spending plan. The Senate had not yet scheduled a vote as of late Thursday. The basic structure of the budget accord calls for lawmakers to approve $14.3 billion in new tax hikes (mostly through increases in the state sales tax and vehicle license fees), $15.8 billion in spending cuts and, finally, $10.9 billion in borrowing. It's not a pretty plan by any one's imagination. But with the state's credit rating all but down the tubes, furloughs and massive layoffs in the offing and taxpayers likely to get IOU's instead of their refunds, something -- anything -- has to happen to end this financial nightmare. In all of California's great history we've never been closer to going over the fiscal falls than we are at this very moment.
Even if the state were somehow able to survive the fall, it would only live to drown in a deep pool of insolvency at the bottom. Let's hope that, finally, partisan ideology will be checked at the door in the coming days and that our state lawmakers will approve this budget plan so that the nation's greatest and most populous state can begin the process of fiscal recovery.
Jeff Mitchell is a Bay Area journalist and political junkie. He can be reached at [email protected]