California budget woes undermine benefits of stimulus plan

SACRAMENTO, Calif. _ The federal stimulus plan will shower California with tens of billions of dollars in tax breaks and spending.

The new state budget would cancel out some of that, however.

Designed to erase a mammoth deficit, the tentative budget plan would effectively take $30 billion out of California's economy through higher taxes and reduced spending.

The plan, set for a vote in the Legislature today, would blot out some of the estimated $80 billion in economic impact that California likely will receive as its share of the federal stimulus package – and blunt the ability of the federal plan to reverse the state's deep recession.

In addition, the higher state taxes could hurt California's business climate, leaving the state exposed to recruitment efforts from other states.

But even though the proposed state budget includes $14.3 billion in tax hikes and $15.8 billion in spending cuts, economists believe that will be outweighed by the tax breaks, public-works projects and other spending included in the federal stimulus plan, which Congress approved Friday night.

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