SACRAMENTO — Some big targets were left largely untouched in Gov. Jerry Brown’s call for shared sacrifice in his proposed budget.
In his plan to raise $12 billion in taxes, Brown avoided a source of revenue Democrats have been going after for years: oil severance fees. Extra taxes on alcohol, tobacco and the wealthy, also targets of Democrats in recent years, were also bypassed.
And, in a nod to his labor allies, Brown did little to rein in the soaring corrections budget — a potential area of cost savings that has wide public support — in a plan that includes sharp cuts to social services and higher education.
It was a bow to political realities, an effort that seems to keep powerful corporate forces on the sidelines and prison guard unions in his corner as Brown seeks to extend everyone else’s taxes for five years.
“I think extending what is (in place) is more palatable than plowing new ground,” Brown said in a brief interview after meeting last week with Senate Democrats. “The strategy is to build the widest possible coalition. Obviously, we’re not ignoring all the ramifications and all the strategies.”
Politically, keeping the taxes broad-based was a “smart move,” said Steve Merksamer, former chief of staff for Gov. George Deukmejian. “Because the targets of tax increases will seriously oppose being the target. It was a politically well-crafted budget.”
The power of corporate money in campaigns cannot be underestimated.
In 2006, big oil companies had spent a record $94 million to defeat Proposition 87, which would have put California in line with all other major oil-producing states by taxing oil companies for extractions. The same year, major tobacco companies spent $65 million to defeat Proposition 86, which would have imposed a new tobacco tax.
Democrats and labor unions, who consistently called on Brown’s predecessor, Arnold Schwarzenegger, to impose a severance tax and do away with various corporate tax breaks, have remained relatively quiet on the question of how far Brown’s tax plan goes as they give the new Democratic governor wide latitude in his first weeks in office.
Brown is already on tenuous grounds in seeking an extension of income, sales and auto taxes for the next five years. Republicans are vowing to block his plan from going to the ballot for a vote, and voters have consistently rejected new taxes.
But some outside groups complained that Brown is leaving at least $1 billion on the table by forgoing an oil extraction fee.
“The only thing holding back an oil extraction tax — perhaps the only tax that Californians could widely agree on — is the oil lobby,” said Judy Dugan, research director of California Watchdog, in a letter to Brown. “And didn’t the November defeat of Proposition 23, an oil-backed proposition to curb green energy, show that Californians are willing to push back against Big Oil when they know the stakes?”
California’s largest labor group, the California Labor Federation, is working closely with Brown and supports the approach he’s taken so far, said spokesman Steve Smith.
But: “We want to continue to explore revenues the public has already said they’re supportive of,” such as oil, tobacco and alcohol, as well as scaling back other corporate tax breaks, Smith said.
“We’d like to see him take a look at some point, whether in June or not,” Smith said. “That’s a determination he needs to make as he builds his coalition.”
Brown’s budget does scale back one corporate break and ends tax breaks to businesses that benefitted from the Enterprise Zone program, which he intends to eliminate, saving the state $343 million in 2010-11 and $582 million in 2011-12.
Brown seeks to eliminate a tax break that took effect just this year: He wants all state companies to base their tax rates on sales — the “single sales factor” — rather than being able to choose from three factors such as employment, property or sales.
The change could bring in $468 million in the current fiscal year and nearly $1 billion in 2011-2012.
State Sen. Kevin DeLeon, D-Los Angeles, introduced a measure Friday that would scale back that corporate break.
A key component to the coalition Brown is building for a tax battle is the powerful prison guard union, which spent $1.8 million on his behalf during the fall campaign. Critics say the proof is in Brown’s corrections budget, which he kept largely intact. Even as Brown reduced expenditures by $8.2 billion for the current year budget, he added $395 million to corrections “to fully fund the salary and wages of authorized correctional officers, sergeants and lieutenants,” according to Brown’s budget summary.
The $9.2 billion corrections budget for the coming fiscal year would remain essentially unchanged from the current year.
“I understand politically why Brown hasn’t tried to undo the public employee union model he signed into law” during his first administration, said Lew Uhlers, founder and president of the United States Taxpayer Association. “But he’s directly confronting the results of that in his budget decisions because of the high costs they impose on the system.”
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