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California Tax Hike Extension Proposed by Governor

California state tax hikes that have expired or are set to expire would be extended under a plan recently forwarded by Governor Jerry Brown. The governor says that the extension would bring in an additional $9.3 billion in revenue to state government coffers. He also is proposing spending cuts amounting to $2.6 billion.

The original plan for the tax extension was that it would bring in more than $12 billion, but the extension was then reduced in the plan because of an unexpected increase in tax collection. An additional $6.6 billion in revenues over the next two years has been attributed to more effective tax collection.

Opposition lawmakers, as well as some of Brown's supporters, are strongly against the tax extension part of the governor's plan, but Brown believes that the California budget crisis should be addressed by a mix of spending cuts and tax hikes.

The plan calls for a quarter-percent increase in income tax rates that expired at the end of last year to be revived in 2012. A one percent increase in sales tax that is set to lapse at the end of June would remain in effect through 2015.

Orange County tax attorneys noted that some aspects of the plan are favorable to business owners. Brown proposes increasing the hiring tax credit and expanding the eligibility for the credit to include a greater number of businesses. Also, a previous proposal to eliminate enterprise zones has been scrapped in the governor's new plan.

Brown says that state spending will be reduced to 1972-73 levels. The state is currently working with a $26 billion budget shortfall.

Source: CNN Money "California's $10.8 billion budget battle" 5/16/2011

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