Schwarzenegger proposes tax increase

From Today's Capitol Alert:

Last Updated 3:38 pm PDT Monday, August 4, 2008
By Jim Sanders and Kevin Yamamura - jsanders@sacbee.com

http://www.sacbee.com/1090/story/1132181.html


Gov. Arnold Schwarzenegger has proposed a temporary one-cent increase in the state sales tax for the next three years in exchange for long-term fixes he believes would solve the state's perennial budget woes, several sources familiar with the negotiations said Monday.

The governor's proposal comes as he and lawmakers are 35 days into the fiscal year with no approved spending plan.

Schwarzenegger has said he opposes tax increases, but was willing to consider all options to close an estimated $15.2 billion shortfall in the $101 billion general fund.

The state sales tax is 6.25 percent, but most counties have local tax additions, such as those for transportation projects, that drive the actual rate higher. A one-cent increase statewide would raise $4 billion to $5 billion a year, based on $29 billion in sales tax revenue expected in the current year.

Aaron McLear, a Schwarzenegger spokesman, had no immediate comment Monday when asked about the one-cent sales tax proposal.

The governor's sales-tax proposal appears to put him squarely at odds with his own Republican Party, which consistently has argued that the state has a spending problem - not a revenue problem.

Democrats are not certain to embrace the sales tax hike, either. Critics argue that sales taxes are regressive, meaning that the greatest impact falls on low-income Californians.

The long-term budget fixes that Schwarzenegger wanted in return for a sales-tax hike would include a system to save revenue in a rainy day fund during good years to bridge budget gaps in down years.