ON CALIFORNIA'S FISCAL STEPS

RUNNING IN PLACE
That's probably on the minds of many Californians, as they the state legislature passed a critical budget full of new tax increases in the nation's largest state.  As the Wall Street Journal reports:

"California's legislature approved a plan Thursday to close a $42 billion budget gap, saving the state from insolvency but falling short of curing its financial troubles.

California residents now face tax increases and spending cuts after getting hit hard over the past year by falling real estate prices and the recession. Under the new budget, they will be asked to give as much as $13 billion in new taxes. State spending, meanwhile, will be cut by $15 billion over the next 17 months, including $8.6 billion from public education."

What's particularly interesting is this bit:

"For a household earning $150,000, the tax increases will almost wipe out the $800-per-couple tax credit in the stimulus package signed by President Barack Obama this week, according to California's Legislative Analyst's Office. The state taxation plan and the federal credit "work against each other," said Legislative Analyst Mac Taylor."

This likely won't be just limited to California, as the piece goes on to discuss:

"Eight other U.S. states face major budget gaps in the current fiscal year, according to the National Conference of State Legislatures, and more than half will face serious budget shortfalls in their next fiscal years, most of which begin in July."

For the bare-knuckles politics behind the arduous budget negotiation between Democrats and Republicans, take a look at this piece from the LA Times. 

It's a slightly faint echo of the machinations we're likely to see continue at the Federal level, when both the House and Senate continue to figure out what to do (and not to do) about the many fiscal challenges in front of us.

President Obama may have proclaimed this week's $787 billion dollar stimulus bill signing as the "beginning of the end".  But it looks like it's going to be one heck of a beginning before it ends.

* Image source.