California's Schwarzenegger Proposes $4.4 Billion in Tax Increases

Associated Press

SACRAMENTO -- Gov. Arnold Schwarzenegger proposed a temporary 1.5% sales tax increase to deal with California's worsening fiscal crisis, which has created an $11.2 billion deficit in this year's budget.

"We have a dramatic situation here and it takes dramatic solutions... and immediate action," the governor said as he called the Legislature back into session to deal with the budget shortfall. "We must stop the bleeding."

Just six weeks ago, Gov. Schwarzenegger signed an overdue state budget that was intended to close a $15.2 billion deficit. The rapid pace of decline in the national and state economies since then has reopened that gap and threatens to widen it even more in the months ahead.

He said the state's economic condition has deteriorated significantly, with a cratering stock market and the continued decline of the housing industry.

California's budget relies greatly on capital gains taxes, which have dropped precipitously in recent months as stock prices have plummeted. Sales and property taxes also have declined.

"Many Californians have lost their homes, they've lost their jobs .. and everyone is worried about their future," Gov. Schwarzenegger said.

The worsening conditions are spreading throughout state government. California's unemployment insurance fund, which helps those tossed out of work pay their bills, is expected to be insolvent by January.

Gov. Schwarzenegger proposed $4.4 billion in tax increases, including a temporary sales tax increase. He didn't specify how long the increase would remain in effect. He also alluded to bringing in more money through other "revenue generators."

The governor said $4.5 billion in cuts will be necessary across all state programs, including education, social services, health care and prisons.

The plan Gov. Schwarzenegger outlined on Thursday will serve as the starting point in negotiations with the Democratic and Republican leaders of the state Legislature. Democrats already have called for tax increases, but Republicans have adamantly refused them. That complicates efforts to get a deal because some Republican votes are needed in the Senate and Assembly to reach the two-thirds majority required to pass spending plans and tax increases.

State Sen. George Runner, the Senate's GOP caucus chairman, flatly said that Republicans will not support a general tax increase.

"The fact is that during this time of economic challenges is not the time to go back to California taxpayers and ask for more money from them," said Sen. Runner, of Lancaster.

He said Republicans would be open to considering other ways to generate revenue for the state. That could include licensing more offshore oil drilling to collect fees and considering selling what Runner said are "billions of dollars of surplus properties."

He said Republican lawmakers oppose boosting gas taxes or the state's vehicle licensing fee, which Gov. Schwarzenegger cut shortly after taking office.