Two Capitols, Two Melodramas

While
most of California and the nation was transfixed this week on whether
the $789 billion federal stimulus package was going to be approved in
Washington, another drama -- no less important to Californians -- was
playing out in Sacramento.

On Wednesday, despite steep
odds, Gov. Arnold Schwarzenegger and state Assembly and Senate leaders
announced that a fragile $40 billion accord to close the state's
deficit through June 2010 had been reached. For this plan to
succeed, Republicans are going to have to agree to vote for tax hikes
and Democrats are going to have to agree to vote for deep spending
cuts. Moreover, both sides are going to have to agree to let the voters
have the final say whether to establish state spending limits during
any flush future boom years. Back in Washington, House and
Senate negotiators announced they had reached an agreement on President
Obama's $789 federal economic stimulus bill. The president is expected
to sign the legislation on Monday.

Just like the state
budget agreement, the federal stimulus bill is not a well-like piece of
legislation. Republicans say it doesn't do near enough to cut taxes and
create job growth. Democrats argue it doesn't spend enough on
infrastructure and vital health and welfare programs.

One part of the package that teetered precariously near the edge of the negotiating table this week was a $70 billion
fiscal "patch" for the dreaded Alternative Minimum Tax. The $70 billion
will staunch any loss to the federal treasury while exempting nearly 23
million taxpaying middle class families from being on the AMT hook.

A
part of the Tax Reform Act of 1969, the AMT was originally targeted at
-- believe it or not -- just 155 high-income households. These rich
families, using a variety of deductions, credits and loopholes, were
paying little to no federal income tax. This naturally didn't sit well
with Congress so the AMT was created to make sure they paid their fair
share. But
because Congress never assigned it an annual cost of living increase
nor any device to adjust for inflation more and more middle class
Americans were being subject to the AMT as their incomes grew over the
years. At the end of the day, however, the conferees
saw the wisdom of keeping the so-called AMT "patch" in the stimulus
bill -- a decision that in and of itself stimulated a great sigh of
relief across middle class America.

Meanwhile, the drama in Sacramento isn't quite over. In fact, the curtain on the third act is just rising.
The
Assembly is scheduled to convene this Saturday to vote on the embattled
spending plan. The Senate had not yet scheduled a vote as of late
Thursday. The basic structure of the
budget accord calls for lawmakers to approve $14.3 billion in new tax
hikes (mostly through increases in the state sales tax and vehicle
license fees), $15.8 billion in spending cuts and, finally, $10.9
billion in borrowing. It's not a pretty plan by any one's imagination. But
with the state's credit rating all but down the tubes, furloughs and
massive layoffs in the offing and taxpayers likely to get IOU's instead
of their refunds, something -- anything -- has to happen to end this
financial nightmare. In all of
California's great history we've never been closer to going over the
fiscal falls than we are at this very moment.

Even if the state were somehow able to survive the fall, it would only live to drown in a deep
pool of insolvency at the bottom. Let's
hope that, finally, partisan ideology will be checked at the door in
the coming days and that our state lawmakers will approve this budget
plan so that the nation's greatest and most populous state can begin
the process of fiscal recovery.

Jeff Mitchell is a Bay Area journalist and political junkie. He can be reached at j.edward.mitchell@gmail.com [1]

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