SACRAMENTO — As Gov. Arnold Schwarzenegger seeks to force down government expenses, his blueprint for long-term reform leaves one area untouched: tax breaks for the wealthy and corporations.
The tax breaks allow yacht owners to avoid paying sales taxes, business partnerships to keep their property tax bills down and large corporations to move money offshore to avoid paying what would otherwise be owed to the state.
Assembly Speaker Fabian Nunez suggests that closing such loopholes could wipe out as much as half of the state's $8.6-billion deficit. Analysts say such projections are far too optimistic, but they question the governor's refusal to even look at the tax breaks.
"There are a lot of people in California who are not asked to bear any of the burden of balancing this budget," said John Ellwood, a professor of public policy at UC Berkeley. "The governor has made a policy choice. He is willing to hit the poor more than the upper-middle class and the rich."
Administration officials make no apologies. They say businesses and the wealthy are already paying too much, quoting from studies showing that Californians pay more in taxes than residents of most other states.
Not taxing enough is not the problem, according to Finance Director Tom Campbell. The problem, he says, is that when the state was flush with cash, California became overly generous in providing services -- with no plan to cover the bill in a down economy.
Using a windfall to expand ongoing programs, he said, leads to "fiscal disaster" when the money runs out. "The governor is proposing you fight fire with fire" with budget measures that would curb such expansions.
Schwarzenegger's plan includes tough reductions along with a constitutional amendment that would force across-the-board cuts in services whenever state spending outpaces revenue. The cuts would also take effect if the governor and lawmakers fail to get a budget in place by their July 1 deadline.
But critics, including Democratic leaders, argue the governor's proposals fail to take on the most extravagant state spending: tax breaks for the rich. Democrats will be focusing on that issue in a series of public budget hearings throughout the state in the coming weeks. And activists have already submitted ballot measures that would attempt to close what they see as unfair loopholes in the tax system.
