Brown Tax Increase Gains Urgency as Deficit Rises to $16 Billion

May 14, 2012

By Michael B. Marois , Bloomberg

California Governor Jerry Brown bet that a nascent financial recovery would lift the world’s ninth- largest economy enough to whittle down a $9.2 billion deficit. Instead, the gap has widened to $16 billion.

Today the 74-year-old Democrat will unveil his revised budget and explain what additional spending must be cut. Tax collections have run $3.5 billion below what he calculated four months ago. Spending has grown $2 billion above projections. The federal government and court ruling blocked some savings he expected, while his fellow Democrats in the Legislature balked at others.

California, with an economy bigger than Russia’s, lost more than a million jobs in the recession that struck in 2007, costing the most populous U.S. state 24 percent of its revenue. The new deficit estimate increases the urgency of the governor’s plans to increase income taxes on some earners to the highest in the nation, and boost sales levies that are now more than any other state.

“We are still recovering from the worst recession since the 1930s,” Brown said May 12 in a YouTube video. “Tax receipts are coming in lower than expected and the federal government and the courts have blocked us from making billions of necessary budget reductions.”

For the last four years, California lawmakers have cut spending and temporarily raised taxes to combat deficits that exceeded $100 billion combined. Deeper cuts now threaten to shred safety nets for the poor, elderly and disabled, reduce subsidies to the state’s renowned public universities and strain funding for public safety and schools.

Health, Welfare Cuts

Brown set out a budget in January with $92.6 billion in spending for the year starting July 1. To get to that figure, he proposed taking more than $4 billion from health and welfare programs, while raising sales and income taxes. The tax increase will be put to a vote in November; if rejected, schools will lose $4.8 billion midway through the year, the equivalent of three academic weeks.

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