California's budget fix falls heavily on taxpayers

SACRAMENTO, Calif. — When they plugged California's $42 billion budget hole in February, Gov. Arnold Schwarzenegger and legislative leaders said everyone had to give up something to repair the state's finances.

But California businesses and corporations with significant operations in the state were largely spared.

Now, that decision is feeding opposition to five budget-related measures voters are being asked to approve during a special election May 19. Opponents say the budget package places too much of a burden on taxpayers in a state that already has a reputation for high taxes.

A recent poll shows the propositions in trouble, including the one Schwarzenegger wants most: a measure that would implement a state spending cap in exchange for extending the taxes an additional one to two years.

Just 39 percent of likely voters support that measure and 46 percent oppose it, according to the Public Policy Institute of California survey.

If voters reject all of the measures, the state will face an additional $6 billion budget shortfall.

For months, lawmakers could not agree on how to close the $42 billion budget deficit. But they settled their differences Feb. 20 with an agreement that cuts $15 billion in programs and borrows about $6 billion. Reaching agreement was particularly difficult because California requires a two-thirds majority vote to pass budgets and tax increases.

The budget package, which comes amid tumbling home prices and an unemployment rate in the double digits, includes a boost in the sales tax that took effect Wednesday and increases in the personal income tax and vehicle license fee.

For businesses, though, there was a long list of corporate tax breaks and credits, including ones for the film industry and a change in the tax formula that will save businesses hundreds of millions of dollars.

Taxpayer groups say the taxes are too harmful in a recession. The Howard Jarvis Taxpayers Association estimates the budget package will cost a family of four an additional $1,100 a year, largely canceling any benefit Californians will receive from federal tax cuts.

"As services are cut and every ordinary taxpayer will have to pay more, it is appalling that major multinational corporations get new tax breaks," said Lenny Goldberg, executive director of the labor-backed nonprofit California Tax Reform Association.

The California Budget Project, a Sacramento-based research group that advocates for working families, estimates that a couple with $40,000 in taxable income will see a 12.9 percent increase in taxes, while a couple making $750,000 would get a 2.9 percent increase.