Brown sells taxes to voters suspicious of spending 

After failing to sell Republican lawmakers on tax increases last year, Gov. Jerry Brown faces another tough act of salesmanship in 2012, this time with voters.

While most other governors are proposing tax cuts and letting temporary tax increases expire, Brown is trying to make the case for boosting taxes on the wealthy and on everyone else through a hike in the state sales tax. He is doing so at a time when California is trying to work its way out of a deep recession and the jobless rate is the nation's second highest.

While a recent public opinion poll shows some support for his tax proposal, the Democratic governor faces challenges on numerous fronts.

Republicans and anti-tax groups insist that any tax increase will produce uncertainty for individuals and businesses, imperiling California's gradual recovery and adding to its reputation as over-taxed.

The governor's fellow Democrats, who control the Legislature, already have signaled that they do not want another round of spending cuts and have been reluctant to embrace the types of regulatory and spending reforms Brown says are needed to close the deal with voters in the fall.

At the same time, a recent statewide survey shows voters remain deeply suspicious of state spending and believe the government should be doing more with less. While they support raising taxes on the wealthy, they overwhelming dislike Brown's companion proposal to raise the sales tax by half a cent.

Brown is taking on the challenge at a time when many residents remain pessimistic about the direction of the economy.

While California's jobless rate dipped in December to 11.1 percent, its lowest rate since 2009, more than 2 million working-age Californians remain without jobs and the state's unemployment rate remains well above the national average of 8.5 percent. Californians' per capita income also has dropped during the recession, from to $43,211 in 2007 to $42,578 in 2010, the latest figures available.

Brown said he anticipates a difficult campaign, in part because of a seemingly unresolvable dilemma: Californians say they oppose spending cuts in education or social services but also don't want to tax themselves any more to pay for the costs of those programs. His challenge, he said, will be to clarify the choices for voters.

"I take nothing for granted," he said in an interview this week with KPPC radio.

The economic headwinds and voter sentiment toward government spending complicate Brown's quest for a tax increase, which is difficult to pass even in better times. Since 2004, California voters have passed just one statewide tax or fee increase — a tax on millionaires to support mental health treatment — while rejecting six others.

In a 2009 special election, the last time such a tax question was put before voters, they rejected Proposition 1A by a 2-to-1 margin. The legislative ballot measure would have extended temporary increases in the sales, income and vehicle taxes that lawmakers had passed earlier that year.

Brown's supporters are gathering petition signatures to place his plan on the November ballot. It would generate between $4.8 billion and $7 billion annually by boosting income taxes on individuals making $250,000 or more for five years and increasing the sales tax for four years.

If voters reject the tax hikes, Brown's budget proposal for the fiscal year that begins in July calls for an automatic cut of $5.4 billion to K-12 schools, a move that could shorten the school year by three weeks. Public opinion polls consistently show that California voters are willing to pay higher taxes if they know the money will be dedicated to public education.

Assembly Speaker John Perez, D-Los Angeles, said voters are well aware of the teacher layoffs and growing class sizes that have resulted from state budget cuts since the recession began in 2007.

"If you look at the cuts we've had to make, we've gone beyond efficiency and quite frankly to a level of cuts that none of us find to be acceptable," Perez said recently.

Brown deserves credit for presenting a balanced budget that gives voters a choice between higher taxes or fewer services, said Joseph Henchman, vice president of state projects for the Washington-based, nonpartisan Tax Foundation. Brown has proposed a $92.5 billion general fund budget for the coming fiscal year, down from a high of $103 billion in the 2007-08 fiscal year.

"At least he's being honest about it," Henchman said. "This is after 10 years of gimmicks and pushing the last payroll into the next year and borrowing for operating expenses and all the other things that California has done to avoid coming to grips with their structural deficit."

Yet Republicans question whether tax increases are even necessary, as revenue already has begun to grow.

The latest figures show the budget deficit shrank in large part due to additional revenue from an improving economy and income gains for the state's wealthiest earners. Senate Minority Leader Bob Huff, R-Diamond Bar, said Brown is bluffing when he says public education will be decimated.

"Last year we were told that we had to pass taxes or the state would go off a cliff," Huff said in a statement in response to the governor's State of the State address earlier this month. "Instead, we balanced the budget and grew revenues by $8.4 billion without raising or extending taxes."

Brown has tried to bolster his pitch for higher taxes by showing he has an appetite for the types of reforms championed by conservatives, including overhauling the public pension system, enacting spending limits and lightening the regulatory burden on California businesses. He has spent the past two weeks traveling the state trying to solicit support from business organizations and civic leaders, even in traditionally Republican territory such as Orange County.

Taxpayer groups and small-business advocates are pushing back.

In a letter to business leaders this week, the Howard Jarvis Taxpayers Association and the California chapter of the National Federation of Independent Business noted that the state already has one of the highest overall tax burdens in the nation, including the third highest income tax and the highest state sales tax, now at 7.25 percent.

They expressed skepticism that Brown and the Democrats who control the Legislature will follow through on their reform promises.

"We doubt that business owners believe that a heavier tax load will help California's economic recovery," they said in the letter. "This is especially true given that there are no assurances that the reforms that California so desperately needs will be pursued in a meaningful way."

California is among a minority of states contemplating tax increases this year. Washington Gov. Chris Gregoire, a Democrat, has asked that state's Legislature to send a temporary sales tax to the November ballot to offset budget cuts.

After four consecutive years of tax revenue failing to keep pace with spending commitments, most states are seeing a gradual turnaround as tax revenue stabilizes, said Arturo Perez, a budget analyst for the Denver-based National Conference of State Legislatures. Many are feeling better about their financial outlook, and it's reflected in their new budgets.

In Arizona, Republican Gov. Jan Brewer has pledged to let a temporary 1 cent increase in the sales tax expire, while New Jersey Republican Gov. Chris Christie wants to cut state income taxes across the board by 10 percent, saving a family with a taxable income of $50,000 about $80 a year.

Others are seeking to recalibrate tax structures by keeping revenue neutral. For example, Kansas Gov. Sam Brownback, a Republican, wants to reduce the individual income tax rate while eliminating most deductions and tax credits.

California voters so far appear to be willing to go along with Brown's plan, but reluctantly.

A January survey by the Public Policy Institute of California found 68 percent of likely voters favor the governor's proposed ballot initiative. At the same time, however, 64 percent said they oppose a statewide sales tax increase.

They also do not trust the way the state spends their money: 55 percent of likely voters say the state could cut spending and still maintain the same level of services, while 62 percent favor strict annual spending limits.

The results suggest that Brown will need to show voters that the state is taking clear steps to control spending.

The governor's most high-profile cost-control initiative this year is a 12-point plan to reform the state's public employee pension system, which has at least $75 billion in unfunded liabilities.

While a legislative conference committee has started analyzing part of that plan, the Democratic legislative leaders have indicated they are not willing to abandon guaranteed defined pension benefits for government employees. Joel Fox, a Republican consultant and editor of the Fox & Hounds Daily blog, said it's no surprise that Brown developed a pension-reform proposal.

"If he's going to make the argument that we need more revenue, then he is going to have to convince voters that he will handle that revenue prudently," Fox said.

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