Budget plan ups the gamble on wealthiest taxpayers

9:44 PM, Jan 14, 2013   |    comments
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Gov. Jerry Brown has railed against the boom-and-bust nature of state government in recent years, but his new budget increases the importance of the root of that volatility: a reliance on the most wealthy.

"Our personal income taxes are about two-thirds of our revenues," said Legislative Analyst Mac Taylor in a news conference to unveil his staff's early review of the governor's 2013-2014 fiscal plan.

And that proportion is growing, in part, because of the taxes approved by voters under Proposition 30.  Brown's budget, released last week, assumes some $8 billion in new taxes on the most wealthy through the summer of 2014.

The report released by the Legislative Analyst's Office (LAO) on Monday points out that's a group of taxpayers particularly susceptible to the ups and downs of the winter fiscal cliff debate in Washington, D.C.  Those taxpayers rely on capital gains driven in large part by the stock market.  And if the market starts to get the jitters from the fight between the White House and Congress?

"That could have significant effects on our revenue forecast," says Taylor.

State tax data shows that Californians making at least $200,000 in adjusted gross income account for an ever increasing portion of income tax revenues.  In 2009, the most wealthy paid 54.5 percent of those taxes; by 2010 -- the most recent year available -- the share had risen to 59.3 percent of all state income tax revenues.

Loren Kaye, president of the California Foundation for Commerce and Education, thinks the most recent data will push the most wealthy's portion to almost two-thirds of state income taxes.

"About 700,000 Californians are paying for almost half of the state budget," said Kaye, who's think tank is a subsidiary of the California Chamber of Commerce.

The reliance of the state income tax system on the wealthy, known as a progressive tax structure, has been the target of a lot of criticism in recent years.  Numerous discussions have centered on the volatility of taxes paid by the wealthy, and whether there's a way to reduce that kind of feast-or-famine kind of budgeting.

Gov. Brown's budget proposes a $1 billion reserve, in part, as acknowledgment of the uncertain economic road ahead.

"Given the potential risks to our forecast -- both from Washington and overseas -- fiscal restraint is a prudent insurance policy," said H.D. Palmer, the governor's budget spokesman.

A ballot measure to strengthen the long-term reserve fund of the state, delayed from the 2010 ballot, is now slated to be considered by voters in November 2014.


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