Finally, Democratic legislators go public with a plan to increase income taxes on the wealthy to balance the state's $15 billion budget deficit. Today's LA Times opines whether or not it is wise to further increase the nation's highest state income tax bracket, but a California Budget Project paper provides a different proposition about raising income taxes.

Today's LA Times,

• Their plan to balance the state budget would raise the wealthiest Californians' income taxes -- already the highest in the nation -- to a level not seen anywhere in the country in years. After years of income taxes steadily dropping elsewhere, California would raise the effective rate on those earning at least $1 million to 12%, more than twice the rate in most other states that have income taxes.
  
  Although legislative leaders are weighing a plan to balance the budget in part by raiding transportation funds and local government accounts, many Democrats are still rallying around an income-tax increase as the best way to bring the budget into balance over the long term.
  
  Economists and money managers, though, are wondering whether California would be returning to this well one time too many. There is, they say, a point at which the cash infusion is outweighed by damage done to the economy: Entrepreneurs get driven away. Profits get stowed in tax shelters. Companies shelve plans for expansion.

All reasonable considerations for each state legislator and the governor. But deciphering what taxation amount for the wealthy in the midst of a budget crisis will not close the deficit.

The California Budget Project released a report last week that put's taxation in proper perspective.

The report titled, BUDGET CUTS OR TAX INCREASES: WHICH ARE PREFERABLE DURING AN ECONOMIC DOWNTURN? provides an historical analysis of the economy's of states which substantially raised their income taxes early in this decade versus those who substantially cut income taxes. Excerpts below:

• The economies of states that substantially increased taxes in recent years performed as well as or better than those of states that did not. States that enacted large tax increases between 2002 and 2004 - increasing state revenues by at least 5 percent - subsequently experienced stronger average growth in personal income than states that did not increase taxes at all. Additionally, average job and wage growth was essentially the same for states that increased taxes the most during this period as it was for states that did not increase taxes. Moreover, states that raised taxes substantially are considerably less likely to face budget shortfalls this year than are states that did not.
  
  The economies of states that enacted large tax cuts in the late 1990s and early 2000s performed worse than those of other states. States that enacted large tax cuts between 1994 and 2001 - reducing revenue by at least 7 percent - subsequently experienced weaker growth in jobs and personal income and larger increases in the unemployment rate, on average, than other states. Furthermore, the states that enacted large tax cuts faced larger budget shortfalls when their economies weakened.

Its important to know that early in this decade which was boomtown for California's real estate market, which recovered the state from the dot com bust a few years earlier, California did nothing related to its income taxation while other states such as Nevada and Alabama both under republican rule raised income taxes despite President Bush's tax cuts for the wealthy at the federal level.

Our state legislature has an enormous task on their hands, and I'm glad there are respectable resources such as the folks at the California Budget Project that can provide mind-clearing information about the typical impacts of raising income taxes.