State tax increase aimed at wealthy

The Democratic budget plan now goes before the full Assembly and Senate.

Legislative leaders, meanwhile, will continue closed-door negotiations with the governor in the hopes of reaching a compromise.

Lawmakers have been slow to address the state's budget problems this year, but pressure is mounting for them to break the stalemate.

The state does not have enough cash to pay its bills past September, and finance officials have warned that, without a budget in place, California may not be able to borrow the money needed to stay afloat until the usual flood of tax receipts arrives early next year.

Officials at the state treasurer's office have advised lawmakers that a cash crisis is possible if there is no budget by Aug. 1 because it takes at least a month to line up the borrowing.

Schwarzenegger spokesman Aaron McLear said that although the governor is opposed to tax increases, he is pleased to see the budget process moving forward.

"The governor doesn't believe that raising taxes is the way to go in this challenging economy," McClear said.

"But, as he has said, it is important that everything be on the table. . . . Now Republicans and Democrats must come together and finalize a balanced budget immediately before the state runs out of money."

As GOP lawmakers warned the new income taxes would encourage business owners and the wealthy to move elsewhere, Democrats defended the tax increases as consistent with action the state has taken in the past.

They noted that raising the tax paid by high earners from the current top rate of 9.3% of income to as much as 11% is exactly what the state did during the budget crisis of the mid-1990s, when Pete Wilson was governor.

"These are really just rolling back tax cuts that have been made," said Senate Budget Committee Chairwoman Denise Moreno Ducheny (D-San Diego).

But critics of the proposed income-tax increases point out that the wealthy have already been hit with a substantial tax hike: a 1% surcharge the state began tacking onto all income above $1 million after voters approved Proposition 63 in 2004.

That tax money is being used to fund an expansion of mental health services.

The wealthy "aren't locked in to being here in California," said Senate Budget Committee Vice Chairman Bob Dutton (R-Rancho Cucamonga).

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evan.halper@latimes.com