Taxable Talk

Jerry Brown faced one reality yesterday: The votes aren’t there for extension of the temporary tax increases passed two years ago. However, he and Democratic leaders of the California legislature will be passing a budget today that will on paper close a $10 billion deficit.

Thee are $4 billion of spending cuts (some will be challenged in court). There are some fee and tax increases (some of which will likely be challenged in court) to raise another $1 billion. And there’s a projected $4 billion increase in revenues…inserted because California had $1.2 billion in higher tax collections than projected in April. Finally, there’s the usual accounting gimmicks (moving certain payments to the following fiscal year) that will result in $1 billion of “savings”.

The budget includes the Amazon tax, forcing online retailers to collect California sales tax. Amazon vows that they will immediately drop all California affiliates, so that they will not have a physical presence in the state and, thus, will not have to collect California taxes.

If one is objective about the budget, it’s quite clear that this budget will leave about a $5 billion deficit for the new fiscal year…and that’s only if the economy doesn’t get worse. I’m not seeing many signs of an economic recovery.

California Controller John Chiang announced today that the budget proposed by the Democrats was not balanced and that therefore he would stop paying the legislature until a balanced budget is voted on. Mr. Chiang stated, “The numbers simply did not add up.” He said the budget had $1.86 billion more in spending than in revenues.

As you can imagine, Democrats in the legislature are livid. Democrats accused him of grandstanding and playing for a higher office. There are rumors of a lawsuit (I’m sure that would go over really well with Californians).

Frankly, Democrats should realize that the budget they proposed was yet another smoke and mirrors budget. Mr. Chiang included revenues in the proposed budget that were likely unconstitutional (he assumed all of the revenues would occur). The true budget deficit was significantly greater than $1.86 billion — probably $5 billion or more.

So will Democrats finally agree to stop kicking the can down the road, or will there be yet another episode of As the Budget Churns? Being a cynic, I’m voting for the soap opera to continue. Expect a lawsuit to be filed, and nothing to happen for more weeks. The losers, of course, are California taxpayers.

In the latest episode of As the Budget Churns, last night Democrats in the California legislature passed a budget but received no Republican votes for it. The budget that passed was typical for the last few years: Full of gimmicks and borrowing, in theory it closed a $10 billion deficit; however, it really didn’t.

Democratic Governor Jerry Brown promised he would veto such a budget. He did so today.

Republicans in the legislature want pension reform; Democrats are beholden to union interests and don’t want pension reform. As usual, the unstoppable force is meeting the immovable object with the normal result: Nothing happens.

There are some new wrinkles. Proposition 25, passed last November by voters, stated that the legislature would have its pay docked if they didn’t pass a budget by June 15th. Well, they passed a budget…but one that might have been unconstitutional (and it was vetoed, too). We’ll have to see if pay is docked but I’m betting it won’t be.

Assuming that’s the case, there’s no pressure on Democrats…until California starts issuing registered warrants (IOUs). That might happen in July.

So don’t forget to tune in next week for yet another exciting episode of As the Budget Churns!