California hasn't been able to borrow money for months, and according to the state's treasurer, it will run out of money in February or March if it doesn't pass a budget and get some income flowing. The majority Democratic legislature has sent Governor Schwarzenegger a budget that contains a suite of "revenue enhancements" that the Democrats call fees, not taxes. In addition to a jump in the state sales tax and personal income tax, there's also a provision to apply a per gallon gas "fee" of 39 cents.

The biggest problem with the proposed budget is the way in which it was passed, which relies on the definition of the word "tax". Democrats used a simple majority vote to pass the proposed budget, instead of the mandatory 2/3 majority needed to pass new taxes, because they say "it does not technically increase the amount of taxes on Californians." For instance, because the gas "fee" would be set aside for transportation projects only, it isn't a tax, it's a user fee, and so it doesn't require a 2/3 majority vote.

Call it what you want, Californians would be paying more money, so Republicans have vowed not to support what they call increased taxes. Citizen's groups have also promised to sue the state if Schwarzenegger signs the proposed budget as is. The other problem is that Schwarzenegger has already vowed to veto it, but not over the tax vs. fee issue. He said he'll let other people sort that out – what he really wants are bigger cuts in spending before he'll approve anything. The budget discussions resume on Friday as lawmakers work to have something done by year's end. Thanks for the tip, Fed!

[Source: Yahoo!]