Governor signed budget, now what?
Friday, Arnold Schwarzenegger signed California’s much-debated budget, which includes quick loans, hefty tax increases and deep spending cuts. So what’s next?
The tax man cometh
New income taxes, sales taxes and vehicle license tax will kick in on April 1, according to the Los Angeles Times. The dependent tax credit will be reduced, which will apply when Californians do their 2009 tax returns.
Switcheroo
Strangely, about seven weeks after the tax increases go into effect, California voters will get a chance to approve or deny them. Voters must agree pay the tax increases for the next two years. Well, the next one year and 10 months or so.
Banking on the lottery
On May 19, the same day they vote on the tax increases, voters will weigh in on all ballot measures related to the budget. This is where the quick loans come in.
In addition to the tax increases, Californians will vote on whether to borrow $5 million against future lottery proceedings. That way the state can spend future lottery purchases now.
How much?
Sales tax will go up by 1 cent on the dollar. Obviously, how much this tax costs individuals depends on how much money they spend. The vehicle license fee will double, bringing the total fee to 1.15 percent of the car’s value.
Income tax will go up 0.25 percent. For those on the lower end of the income scale, this will cost about $53 per year. For those making $1 million or more who have two dependents, it will cost about $2,250. The dependent tax credit will be reduced by $210 for everyone.
“According to a legislative analysis of those four tax increases, an average family of four with an annual income of $75,000 would pay $963 more a year in taxes.”
More budget ballot
There will be a few more items for Californians to vote on come ballot time. The budget proposes reducing spending on mental health programs by $226. It also takes $608 million from programs aimed at children younger than 5 years old. Voters will have to approve these measures for them to go into effect.
Another ballot measure would put a cap on future state spending — if the voters say the tax hikes can stay in place four years instead of two.
No free lunch for legislators
State leaders’ salaries could take a hit, too.
A constitutional amendment on the ballot would “eliminate salary increases for state officers, including the governor and Legislature, in years with a projected budget deficit.”
Vote heard around the world
Budget negotiations in California were not pretty this year. California requires that two-thirds of legislators approve the budget. After two weeks of debates and battles, they were still coming up one vote short.
Democrats gave some last-minute concessions and won the vote of Republican Sen. Abel Maldonado. According to Central Coast News, Maldonado became “an instant celebrity.”
What happens?
If Californians vote down the tax increases and spending cuts, it will be up to the legislature to figure out how to fix the hole in its spending plans. The legislature may need to try to find more ways to get quick loans in order to avoid another deficit next year.
Tax increases are unfortunate, and if they are subject to voter approval they are likely to be shot down. No one wants to pay higher taxes, and if they have a choice about it they are going to avoid it. That said, if the taxes fail to pass muster California is in for a hard road.