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California Democrats offer alternative plan to solve budget crisis

by Adrienne Verrilli, published

This week, Senate and Assembly Democrats released their respective budgets for 2010-2011, each relying on a mix of taxes and borrowing to deal with state’s budget crisis while preserving critical education and social services that the Governor proposed cutting earlier this month.

On the Senate side, the Democrats’ plan proposes nearly $5 billion in taxes and other revenue.  Specifically, the Senate plan calls for:

    •    Delaying the planned corporate tax cuts, saving $2 billion in future lost revenue

    •    Raising the vehicle license fee .35 percent to 1.5 percent, generating $1.2 billion in revenue

    •    Increases the tax on alcohol which has not been raised since 1999, raising $210 million

    •    Extending the personal income tax charge of .25 percent and the reduction in tax credit for dependents adding $1.4 billion in funding this year and another $4.2 billion next year

The one percent increase in the state sales tax will not be extended in the Senate plan.

In the Assembly, Democrats proposed to borrow $8.7 billion in bonds to be repaid over 20 years, plus interest, with a new tax on oil companies that would raise roughly $1 billion a year. They say their plan will spare more than 400,000 jobs that the governor's proposal — with its deep cuts to social services and child care programs — would cost the state.

And while the Assembly Democrats recognize this is not a long term solution, they have proposed the following:

    •    Borrow $8.7 billion against the California Beverage Recycling Fund. The borrowing would seed a "Jobs and Economic Stability Fund" to head off the elimination of the state's social program and pay off debts the state owes to school districts and local governments

    •    Charge an “oil tax” on production to pay the debt.  As the only oil-producing state in the nation that doesn’t tax oil production (including TX and AK), the proposed oil tax is expected to generate $900 million next year alone.

Like the Senate’s plan, the Assembly also delays the planned corporate tax breaks and discontinues the sales tax increase.  In fact, Assembly Democrats have even claimed that their approach could be passed by a simple majority because there is no tax increase as the oil tax revenue will be offset by the drop in the sales tax.

The Democrats hope to tap into the rage over the BP oil spill and the enormous profits of the oil companies in recent past. According to reports this week, Assemblyman Alberto Torrico, D-Newark said, "Even Sarah Palin in Alaska didn't give away the oil for free.  We continue to see that corporations are seemingly above the law."

Both plans have been criticized by the Governor, as well as Assembly and Senate Republicans charging accounting gimmicks and lack of proposed spending cuts. On the other hand, the state’s largest union, the SEIU, has shown support for the approach by the Senate and Assembly Democrats.

The current “taxes vs. spending cuts” debate has worn out it’s welcome. With all budget plans now on the table, it is time to drop ideology and, instead, seek and implement real solutions to solve the state’s financial crisis.

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