DEMS PITCH ‘REVENUE NEUTRAL’ PLAN, BUT CRITICS SEE AN END RUN

By Jim Sanders
jsanders@sacbee.com The Sacramento Bee
Published: Friday, Jan. 29, 2010 – 12:00 am | Page 1A

Tempers are short, coffers low and a partisan skirmish Thursday on the Assembly floor made the target clear: Take money from some to help others while avoiding the dreaded two-thirds vote requirement.

Assembly Democrats decided to find money to cut textbook costs for college students by closing a corporate tax loophole on multinational corporations.

By casting Assembly Bill 1178 as revenue neutral, raising and cutting equal sums in taxes, Democrats could ignore Republican opposition and pass the measure by a simple majority.

The bill moved to the Senate by the bare-minimum number of votes required, 41-28.

“They will look for every loophole, gimmick and subterfuge to move money around,” said John J. Pitney Jr., professor of politics at Claremont McKenna College.

Numerous efforts to raise revenue without hiking taxes have been proposed, including Gov. Arnold Schwarzenegger’s recent budget ideas to:

• Retrofit red-light cameras to catch speeders – and spend the estimated $338 million in annual revenue to fund courts.

• Allow oil drilling on Tranquillon Ridge off the Santa Barbara coast and use the $140 million in annual revenue to fund state parks.

• Impose a 4.8 percent surcharge on all residential and commercial insurance policies to bolster state firefighting efforts.

Schwarzenegger hopes to win a two-thirds vote of the Legislature to enact his proposals as urgency measures so they can take effect immediately.

But all legally could be passed by a majority vote, though doing so would eat into potential savings by delaying implementation, said H.D. Palmer, Finance Department spokesman.

Schwarzenegger’s goal is to “find ways to generate revenue for state programs that do not have the effect of stressing the economy,” Palmer said.

“We are beginning to see the flickering signs of economic recovery,” he said. “The worst is behind us. We don’t want to knock that recovery back in the wrong direction – and we think that a general tax increase would do just that.”

Senate President Pro Tem Darrell Steinberg, D-Sacramento, is pushing to generate revenue by requiring tax withholding for independent contractors.

While Steinberg paints the proposal as a way to ensure capture of contractors’ current tax obligations, Schwarzenegger brands it a tax hike.

Some Democrats have not ruled out the possibility of a targeted tax hike, such as an oil severance tax, but they concede that GOP opposition makes passage highly unlikely.

Jon Coupal, president of the Howard Jarvis Taxpayers Association, said he expects machinations similar to last year’s failed attempt by Democrats to eliminate the sales and excise tax on gasoline and replace the lost revenue through a higher per-gallon gasoline fee.

Coupal said efforts to disguise tax increases as fees or to link them with simultaneous tax cuts and call them revenue neutral, like AB 1178, are likely to be challenged in court.

“You can’t do this kind of revenue neutrality nonsense if you’re increasing anybody’s tax and claiming it’s not a tax increase,” Coupal said.

Larry Gerston, a political science professor at San Jose State University, said revenue-neutral proposals like AB 1178 may bolster a favored program but do nothing to eat into the state’s budget gap.

“You’re the same $20 billion short that you are today,” he said.

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