California Gov. Jerry Brown speaks during a news conference on May 14, 2012 in Los Angeles, Calif. Brown has proposed $8.3 billion cuts in California to help close a projected $16 billion budget shortfall.
California Gov. Jerry Brown speaks during a news conference on May 14, 2012 in Los Angeles, Calif. Brown has proposed $8.3 billion cuts in California to help close a projected $16 billion budget shortfall. - 
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Jeremy Hobson: The euro currency is near a two-year low against the dollar this morning after yet another summit of European leaders failed to give the markets any confidence that they've got a way to solve the debt crisis. In Washington, an end-of-year fight over raising the federal debt ceiling is looking more likely, because of partisan differences over spending and taxes.

And here in California, a similar debate is playing out thanks to a $16 billion budget deficit. The question is: How will the state find a fair mix of cuts and taxes to close the gap?
As part of our coverage of Wealth and Poverty, California Governor Jerry Brown joins us now from Sacramento. Good morning.

Jerry Brown: Good morning.

Hobson: So you’ve got a $16 billion budget hole right now, you’re ability to raise taxes is limited because of voter approved propositions in part, you’re ability to cut spending is limited because of lawsuits. What are you going to do?

Brown: We’re going to cut and hopefully tax. The tax will be subject to voter approval this November. In terms of the cuts, I’ve proposed some pretty drastic cuts; in social services, Medi-Cal which nationally is Medicaid; to the courts; and a lot of very drastic cuts. So we have both a tax and a cut. It’s very difficult to get a tax passed when you go to the electorate, but this is the kind of decision in a democracy I think the people are most well equipped to ultimately make.

Hobson: So you're not worried that if you raise taxes on the wealthy even further here in California that you're going to lose some of the innovators and entrepreneurs, that are -- so many of them in this state?

Brown: Well you know if you look at the data. As you go up the income scale, the wealthier you are the faster you’re growing in the wealth that you’re accumulating. If you go to the people lower down the scale making $40,000 or $30,000 or $50,000, some of them are actually losing ground, so it’s only fair. This is the only tax that has any chance of passing. Were I not to do it, then we’d have to double the amount of cuts. I mean the fact is, we’re a wealthy state and the public sector needs more than it’s now getting.

Hobson: Now let me ask you this, because you’re going to ask the public to approve this tax increase. I have to say that when I talk to friends across the country, they look at this system in California and they say: well, why don’t they just throw out this constitution that requires voters to approve everything that they do? They can’t do anything with all this.

Brown: Well that’s an interesting term to phrase. Why don’t we just throw out this constitution? They’ve done that in a number of countries, it’s called a coup d’état. Look, this is a democracy, you can find fault with it but compared to the paralysis in Washington, at least we have an ultimate arbiter, which are the people themselves. You can’t squeeze blood out of a turnip. We only have so much money and they’ve been kicking the can down the road -- gimmicks, accounting maneuvers. At this stage of my life, I’m coming back after a 27-year hiatus here and I’m going to make this budget balance. I’d rather do it with taxes; and if we don’t have that, we’ll do it the old fashioned way with some pretty drastic cuts.

Hobson: Let me ask you one last question governor. When you want to get away from all this stuff in Sacramento where do you go? What’s your happy place in California?

Brown: Well, I live in Oakland, I find that extremely happy -- if you want to call it that.  It’s a great place; we’ve got great parks and trails. I can see out into the Pacific 50 miles on a clear day. I like to read about the decline of the Roman Empire, and then I like to read about all of the successes that people were able in the face of challenge to overcome against terrific odds. And I think that through facing things with clarity and courage, we can get the job done. And maybe we can inspire some of the same spirit of resolve both for Washington, and maybe even in Europe.

Hobson: California Gov. Jerry Brown, thank you so much.

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Follow Jeremy Hobson at @jeremyhobson